Nearly 70% of all new cars purchased are on finance, making car loans one of the most popular types of consumer loans at present. However, despite the initial attraction of car financing, several borrowers later have trouble keeping up with their loan repayments, which ultimately affects their credit scores. As per a recently conducted Kelley Blue Book study, sixty per cent of car loan shoppers are now choosing longer term car loans as a way to reduce monthly repayments. While this is a smart move, reduced repayments alone cannot keep things in control and some other factors must be considered as well.

Here are a few tips on how to manage your car loan efficiently without letting it affect your credit report:

1. Determine your Financial Situation:

• Make a budget and consider all your expenses.
• Any surplus funds should be redirected into your loan account.

2. Look at your Credit Report:

• Get a copy of your credit report from an online agency and gauge your credit worthiness.
• You may be able to negotiate a more competitive interest rate on a good credit score.

3. Shop Around:

• Shopping around may be time consuming but can result in significant savings for the smart shopper.
• Do not be afraid to inform a sales agent of the deal you are being offered at another dealership. It is better than haggling over price and the competition in the car industry may mean you land a better deal.

4. Target Mainstream Finance Options:

• Mainstream car finance options (mainstream finance option is finance obtained through a bank or a major credit institution) usually have the best deals.
• In case of a bad credit score, you might have to get finance from a non-conforming lending channel. This is usually at a higher interest rate.

5. Prompt and Timely Repayments:

• Your car loan repayments should be scheduled in line with your wage or salary.
• Pay your car loan immediately after getting your salary or if you have a direct debit system with the finance provider, ensure you account is debited a day or two after payday.

6. Beware of Interest Rate Rises

Example : If your repayments are $370 per month on a car loan of $40,000 at 11% p.a. for a period 5 years. If the interest goes up to 13%, your new repayments will be $433. This means that you will have to budget an additional $63 per month to meet your repayments or risk damaging your credit report.

7.      Leasing versus Buying: Car loans can either be leasesor purchase contracts and a lease should only be considered if the vehicle is for income generating purposes.

Leasing may offer lower monthly repayments than a purchase option but costs you more in the long run. Typically a lease agreement is structured such that you have to contribute a single balloon payment at the end of the contract. This balloon amount cushions you from higher monthly repayments but may be unaffordable at the end of the lease agreement. More importantly, if you calculate the total costs with a lease and purchase option, you may be surprised to find that you save more with a purchase agreement.

8. Debt Consolidation: Debt consolidation could be a good way to ease financial stress. If you have sufficient equity in your property, talk to your bank and use part of that equity to pay off your vehicle finance. The bank will absorb your car loan into your mortgage facility and you will be making repayments on the one finance facility. So now have only one credit facility to deal with and also have a greater amount of time to repay the loan (home loans are usually 15-30 years) and at a lower interest rate than your car loan.

The above mentioned tips are a few simple and easy steps that can ensure that your car loan is well managed. This will ensure that you do not fall behind on repayments and will also guide you towards improving your credit report.