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Turned down for auto loans or given bad rates? Now you'll know why

[Jul 25, 2011.]

 

Nobody with any sense applies for auto loans, credit cards, mortgages or any other type of financing unless they think they stand a reasonable chance of being approved. It's generally fine to apply for the same sort of loan multiple times within a short period if you're shopping around for the best rate, but too many applications for different forms of borrowing or over a longer time can drive down your credit score, according to FICO, the people behind the most widely used scoring systems.


So there you are, expecting to be approved at the advertised rate, and you're either turned down or offered a more expensive loan. What a blow. Until recently, you had two choices: to shrug and move on, or to get hold of a copy of your credit report to see what went wrong.


Loan decisions explained


Now things have changed. Whenever you're turned down for a loan or offered a rate that's higher than the norm, the prospective lender must, by law, tell you why. That's thanks to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which required the Federal Reserve to draw up the necessary regulations. Originally, the Fed said these would take effect during August, but Bloomberg said on July 21 that the new rules came into force that day.


Also according to that Bloomberg report, the information that disappointed or disadvantaged applicants can expect comprises their credit score plus the main four reasons why they were turned down or given a higher than average rate. Those four reasons could include late payments, defaults and so on.


Auto loans, applications and thinking ahead


When IndexCreditCards.com recently covered this topic, it suggested getting a copy of your credit report before you make applications for credit cards, auto loans, mortgages or any other sort of credit. There are two reasons for this. First, some experts believe that 50 to 70 percent of all U.S. credit reports contain at least one error, and, if yours is one of them, you need the chance to correct harmful mistakes before you apply. And second, it makes sense not to waste your time trying for loans for which you'll never be approved. If you know in advance what your credit report says, you can focus on the finance deals that you're likely to qualify for.


You're entitled to a free credit report from each of the big-three credit bureaus (Equifax, Experian and TransUnion) once every 12 months, and the only official source for these is annualcreditreport.com. Some people prefer to pay for a service that gives them continuing access to their reports and scores, partly because these could offer some protections against identity theft. However, some paid-for services provide scores that differ from the ones that lenders use, and--if you need to know whether you're likely to qualify for particular auto loans--that can rather defeat the object. The government's new Consumer Financial Protection Bureau published a report on this just last week.


Auto loans quotes


Whether or not you choose to obtain your credit report before you apply, as soon as you're ready to buy your new or used car you should shop around for the best deal. You could start by finding competitive quotes for auto loans on this site.

 

About Author:

Peter Andrew has been writing about -- and for -- business for more than two decades. For the last couple of years, he has found himself increasingly specializing in the U.S. financial sector.

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