There’s nothing more thrilling than the feeling of shopping for a new car, finding the perfect vehicle to match your needs, desires and hopes, and hitting the gas pedal for the first time. However, as you begin your quest to find a new or used car, there’s a strong likelihood that you’ll also be applying for an auto loan, like the majority of people. You may be thinking to yourself, “Yeah, so what?” Well, whether or not you’re eligible for an auto loan and what type of interest rate you’ll be quoted are contingent upon your credit score.
According to a credit repair Austin expert, it’s important to note that the requirements surrounding your credit score will vary from lender to lender – especially if you’re planning to finance through an auto dealership. So, what can you expect when you apply for your credit loan? And why does your credit score play such a pivotal role in the application process? Let’s take a look.
How Your Credit Score Impacts Interest Rates
Lenders typically categorize credit scores using a tiered system. For example, they may utilize a ranking system that consists of five tiers – Excellent, Good, Fair, Poor, and Bad. If you have a high credit score (700 and above), it communicates to lenders that you are fiscally responsible, and they will supply you with the best interest rates on the market.
Those with low credit scores (580 and below), however, will be subjected to high interest rates, which makes it much more difficult to pay back your loan. The goal is to minimize the amount of interest you’ll have to pay over the lifetime of your loan.
Before You Begin Your Car Search
While you may be itching to hit up your local car dealership and rev your new engine, there are some important steps to take before you even begin looking at cars. The first step begins with having a firm understanding of where your credit score currently stands. Don’t worry if you’re unsure. You can use an app like Credit Karma or directly request a copy of your credit report from each of the three main credit bureaus – Equifax, Experian, and TransUnion.
Once you have your credit score in hand, you’ll want to connect with your financial institution to initiate the process of getting pre-approved for your auto loan. By doing so, you’ll have a firm grasp on what qualifies as an affordable vehicle based on your financial picture. You’ll also gain insight into what your interest rate will be and the estimated monthly payment you can expect to see.
You may be presented with the option of putting a down payment on your vehicle, rather than attempting to finance the full amount of the car you’re interested in. If you decide to take this step and have the financial means to do so, it’ll give you a bit of wiggle room to leverage with the auto dealer.
Improve Your Credit Score & You’ll Improve Your Auto Loan
So, you’ve discovered your credit score could use a little TLC. Hey, it can happen to the best of us. Maybe it’s an unexpected medical bill, unemployment, or you just got in over your head with credit card bills. Regardless of the circumstances that led you to your current credit score, there’s a multitude of ways to improve your credit standing. Here are a couple of tips:
- Don’t open new credit lines unless absolutely necessary.
- Avoid late payments. Paying your bills on time each month will help raise your score.
- Review your credit report to ensure there aren’t any erroneous details (like your name spelled wrong) that could be detrimental to your credit health.
- Ensure you keep a low credit balance in comparison to your credit limit. If you’re currently battling credit card debt, devise a plan of action for how you plan to pay down those balances.
Finding a good deal on a new or used vehicle is only half the battle. If you can’t hand over a good credit score, you could potentially have your application denied or face incredibly high interest and insurance rates. With that in mind, always focus on maintaining good credit. If you find yourself face to face with a poor score, don’t be shy about seeking help.