How Your Credit Score Will Impact Your Next Car Purchase
Friday, May 5, 2017, 6:00 AM | Leave Comment
In the modern world, a credit score is not only a number, but also a measure of how easy it will be for you to borrow toward the necessities of life.
You probably know that your credit score affects things like the limit and interest rate on your credit card and your ability to borrow toward the purchase of a home, but many people overlook the importance that credit scores have in the process of purchasing a new car.
Here is a basic overview regarding how your credit score will impact your next car purchase.
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When Do Credit Scores Come Into Play When Purchasing a Car?
There are, of course, many different ways to buy a car. However, the majority of them will require credit of some kind.
Whether you’re purchasing from a dealer with a formal car loan or using a personal loan to finance the purchase of a car from a private seller, your credit score will affect the terms of your loan.
The only instance in which a car purchase will not be affected by your credit score is one in which you are paying for your new car outright, which few people can afford to do.
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What Effect Does Your Credit Score Have?
When you purchase a car, your credit score will come into play in multiple ways.
The first, and most important, way in which it will affect your purchase is by determining the interest rate you will pay on your car loan. Someone with a higher credit score is expected by lenders to have a lower risk of defaulting on a loan. Because of this, lenders will be more likely to extend a lower interest rate to someone with good credit.
Another element that can be affected by your credit score is the term of the loan. Be aware, however, that this is determined by multiple factors, not just your credit score. Typically, it will be easier to secure a longer loan term on a vehicle sold at a high price point.
This is why automotive dealers that sell both used and new cars, like the St. George Subaru dealership Findlay Subaru, are able to extend longer loan terms on new cars than on used ones. In some instances, having good credit can make it easier to get a loan term of 60 months as opposed to 24 or 36, which will ultimately lower your monthly payment.
Finally, your credit score affects how much you will be able to borrow toward a vehicle. In much the same way that a good history of repayment makes lenders willing to offer lower interest rates, it will also make them more willing to lend you larger sums of money.
If your credit score is less than stellar, you may not be able to qualify for a loan for the best vehicle on the lot.
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What is Considered a Good Credit Score?
Different types of loans have different credit standards. Car loans are an interesting area of finance because of the fact that the standards lenders use can vary widely.
However, there is at least a general guideline for securing the lowest interest rates on a car loan.
Typically, someone with a score of 720 or higher will be able to get very reasonable terms on a car loan.
Although you can easily secure a car loan with any score greater than 500, you should expect to pay substantially more in interest.
If your score is a little below what it should be, you may want to use other credit options, such as a credit card, to build your score up a bit more before you decide to take out your next car loan.
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Anica Oaks is a Freelance writer and web enthusiast. Read some of her published work on her Google+ page.
