Most people own cars. In fact, experts believe there are over 1.32 billion cars on this planet.
While many people own their cars outright, others have loans on them. Do you need an auto loan to buy a vehicle?
If you are in the market for a car and need a loan to buy it, it’s essential to understand the correlation between a credit score and car loans.
Your credit score will affect your loan, and here are a few of the most important things you should know as you begin shopping for a car.
Your Credit Shows Creditworthiness
You probably know where you rank in terms of your credit score, but do you understand what a good score is?
Credit reporting bureaus rank scores by factoring in multiple details about a person’s finances. The bureaus base scores on payment history, money owed, and more, ranging from poor to excellent.
People with excellent scores qualify for the lowest interest rates available, as high scores indicate creditworthiness. People with lower scores can usually qualify for auto loans, but the interest rates are generally higher.
Your credit score reveals how creditworthy you are. If you have a low score, it increases the lender’s risk when issuing you a car loan. If you have a high score, a lender assumes little risk when issuing you an auto loan.
Lenders Correlate Credit Score and Car Loans When Evaluating Applications
If you want to finance a car, you’ll have to apply for a car loan when you find the vehicle you want to purchase. If you have a car to trade-in, the lender will factor the car’s trade-in value when evaluating your loan application.
When the lender reviews your application, it tells them where you stand in terms of creditworthiness. If they find that you have an excellent score, you’ll likely receive approval for the loan right away, and you’ll receive a low-interest rate.
When it comes to a low credit score and car loans, you might be eligible for a car loan, but you’ll pay a higher interest rate.
How the Interest Rate Impacts a Car Loan
After applying for a car loan, you’ll find out the interest rate on the loan. The interest rate has an impact on the car loan, as it affects how much money you pay in all. The interest rate also impacts your payment amount.
If you qualify for high car loan rates, your payment might be higher than you expected. In this case, you could consider extending the loan to a longer duration, as this would reduce the payment amount.
It’s also vital to know that used car rates are always higher than new car rates. If you want a lower rate, you might want to select a newer vehicle.
Your Next Step: Applying for an Auto Loan
Now that you understand the correlation between your credit score and car loan rates, you might be ready to apply for a loan.
If so, contact us at Terry Auto Outlet to learn more about purchasing and financing a vehicle from us.