Car Loans and Credit Scores
Understanding How Credit Scores Affect Your Car Financing Plan
Buying a Car with Financing
If you’ve finally decided which car model you want to purchase, the only thing that you need now is the right financing so you can drive your dream car home. One of the best ways to finance your car is through a car loan. While it is better to purchase a car up front, it’s not an option available for everyone.
If it is your first time getting a car loan then you must have a lot of questions in your mind—particularly about your credit score. Your credit score plays an important role in qualifying for a car loan as it is the main factor that banks and lenders consider when approving a car loan. One thing to remember is that like most car loans, the more solid your credit score, the better your rates and terms.
If you want financing to purchase a vehicle then you need to arm yourself with knowledge about car loans, specifically about the required credit score. Vehicle Connect experts will share these insights to help you out.
What is a Credit Score?
A credit score is a statistical number that evaluates a consumer's creditworthiness, and is based on an individual's credit history. It is the major factor that affects a lender’s evaluation and helps determine whether an individual will repay his or her debts.
The higher your credit score, the better your chances of being accepted for credit at the best rates. It highly influences your chances of getting approved for credit cards, loans and mortgages, and even car financing.
Does Credit Score Affect Car Loans?
Having a good credit score is an important part of your financial picture. As a borrower, you’d want your transactions to go smoothly, and with a good credit score lenders will not question your credibility as a payer. Credit scores are a financial tool, so your number really does matter when it comes time to use it.
In short, a credit score is paramount in determining whether you will get a loan, the rates you will pay, and what kinds of financial options you have available to you.
Before you apply for a car loan, you can check your credit score with a credit bureau to set your mind at ease. Credit reporting agencies hold the key to your financial history and whenever you apply for a loan or a credit card, lenders will request your credit report and score.
How Does a Credit Score Affect Interest Rate
Your interest rate is calculated based on your credit score; the higher your credit score is, the lower your interest rates are. This is because banks and lenders will be more confident in your ability to make repayments if you have high credit score. Ultimately, this will help you qualify for lower interest rates and fees on your car loan.
However, lower credit scores won’t necessarily keep you from qualifying for an auto loan but you can expect higher interest rates once your loan is approved. Generally, credit scores of 600 or lower can result in loans with interest rates of 10% or more.
Ways to Improve Credit Score
To ensure that your car loan will be approved it’s important that you keep a good credit score. If you have a low credit score, you can still improve it and here's how:
Make Timely Payments
You don’t want to make your situation worse by repaying your debts late—that is an action that could negatively impact your credit score. As such, you need to pay your monthly loan and credit card repayments diligently. If possible, pay more than the minimum amount on your credit card to pay your debts ahead of time.
Pay Balances in Full
If your goal is to improve your credit score, you should try not to delay your payments and stack your balances. Paying your balances in full—and as quickly as possible—can increase your credit score.
Get a Secured Credit Card
By opening new accounts, like getting a secured credit card, you can rebuild your score with on-time payments. While this is a good option, remember not to do this too often or it may have a negative impact. It is also important that you make timely repayments on all your new credit cards.
Regularly Check Credit Reports
Be responsible for checking credit reports regularly and if you notice any incorrect details, don’t hesitate to report it or file for a dispute to the credit bureau. This way, you can land a solid loan rate. Additionally, stay on top of your credit health by checking your credit report every year.
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Vehicle Connect may be well-known as a car buying service provider, but you also do not have to look any further for reliable car loans and car dealers in Sydney. We will help you find the car of your dreams AND the car loan that is suitable for your situation. We can help you secure the best rate with the best terms.