Are you in the market for a car? If you were planning on taking out an auto loan for that purchase, you should know that lenders use your credit score as one of the main factors in deciding your interest rate.
What is Your Credit Score?
There are several websites you can use to check your credit score, like creditkarma.com, to see where you stand on the credit scale. Your credit score will be a number anywhere between 200 and 800 depending on which score you’re looking at, but the higher the better.
Lenders use these scores to determine how reliable you are when it comes to paying back money. The more dependable you are, the more likely you are to get loans, and you may even qualify for some that are for higher amounts with lower interest rates.
How to Have a High Credit Score
The more types of credit your portfolio holds, te better. Paying all of your bills on time and in full and staying out of debt are the best ways to have a great credit score, but having a diverse portfolio means having pulled out different types of loans and lines of credit. Still, those will mean nothing if you do not show that you can and are paying them off.
What to do if you Have a Low Credit Score
If you happen to fall in the bad or poor credit range, you have a few options on how to improve your credit. The simplest way is to pay off all your debts, but that’s not as easily done as said, and then you also have to be consistently out of debt and in good standing with all lines of credit for some time before your score improves.
To stay out of trouble to begin with means paying all of your bills on time, keeping your credit card balances low, and only opening credit when you need it. To better your credit you must also do these things, but you’re also faced with digging yourself out of the hole that past debt has created.
Getting a Car Loan
No matter your credit score, the more you put as a down payment on your auto loan the better. This can lead to a lower interest rate because the more you put as a down payment, the less risk you are to the lender.
When it comes to buying used cars, it is good to keep in mind that loans for them generally come with higher interest rates than those for new cars. This is due to deprecation. A car dealership gains less when selling a used vehicle, and so in an attempt to regain some of that loss, they will use higher interest rates. But, if you choose a loan with a shorter term, you can save yourself some money. You become less of a risk to the lender, and so the loan may have a much lower interest rate. Though, you have to be prepared for more expensive payments.
As with any major purchase, it’s important to know your credit score before financing a used car. A few simple steps in preparation might just save you a lot by helping you qualify for a loan with a lower interest rate.