Your Credit Score and Your Car Loan

If you’re in the market for a new car, you probably have a couple numbers on your mind: the mileage, the price of the car and the monthly payment.

But the one number you may not not be thinking about that could seriously impact how much you pay for your new ride? Your credit score.

Unless you’re paying for a car with straight-up cash, you’ll like have to shop around for a car loan. And your credit score will impact what kind of rate you can get on your auto loan – or even whether you’ll qualify for a loan at all.

                        

Just how does your credit score impact your auto loan? Like other loans and lines of credit, a good (or great) credit score means you’re more likely to qualify for a good (or great) interest rate on your loan. The better your credit score, the better your interest rate and the less money you’ll pay over the life of your car loan.

On the other hand, if you have not-so-good credit, you may be stuck with a higher interest rate and pay thousands of dollars more over the life of your auto loan.

And if you have really poor credit, you may not qualify for a car loan at all.

But while good credit is important for securing a good rate on an auto, even a good credit score doesn’t necessarily guarantee the best interest rate on the market. If you’re thinking of getting an auto loan through your dealer, the dealer may not offer you a preferred interest rate (they tend to make money by charging higher-than-normal interest rates). So regardless of your credit score, it’s always smart to shop around for rates on auto loans before you head into the dealership.

Since, your credit score is such an important piece of the overall cost of your car, it’s good to know what kind of number you’re dealing with before you head out to buy a car. Before you start to shopping around for the car of your dreams or start the process of negotiating rates on an auto loan, check your credit score and your credit history. You’ll have a much better sense of the types of interest rates you’ll qualify for and a better estimate of the overall cost of the car.

If you think that your credit score may be too low to qualify for a decent car loan, talk to your local bank or credit union about their auto loan options. You may be more likely to qualify for an auto loan at a financial institution where you already have a relationship, since your bank or credit union will likely consider other factors besides your credit score in your car loan application process.

Finally, if possible, consider waiting to buy a car until you can boost your credit score or save up money to make a larger down payment – both of which will not only help you qualify for a better car loan, but will save you more money in the long-run, too.

Source: Secondary