An auto loan is a big responsibility. Does your credit score have what it takes? Before you start your search for your new set of wheels, learn how your credit score affects your auto loan financing – and how you can improve your score.
1. You can get an auto loan with nearly any credit score, but it will affect your interest rate.
A low credit score may not keep you from getting auto loan financing, but it will likely mean a higher interest rate. A good interest rate can save you thousands of dollars over the life of the loan. Shop around for the best loan rate for your credit score, or wait to apply for financing until your credit improves.
2. Your credit score is the most important factor lenders consider.
Think of your credit score as proof of your financial trustworthiness to lenders. Both your numerical credit score and your credit report contain detailed information about your payment history, your debts and types of credit you have. Find out more about understanding your credit score.
In addition to your credit score, lenders may also take into account your income, employment history, debt-to-income ratio and amount of your down payment.
3. You can check your credit score (and improve it) before you apply for an auto loan.
Before applying for an auto loan, request a copy of your credit report, review it and take time to dispute any incorrect information. Keep in mind that disputed items can take up to 45 days to resolve. You can also improve your credit score by making your loan payments on time, having various types of credit and staying under 35% of your total available credit limit. Remember patience is key as improving your credit score takes time. Repairing bad credit could take several years depending on your specific situation.
4. No matter your credit score, auto loan pre-approval establishes your rate before you go to the dealership.
Going to the dealership knowing your credit score is only half the battle – dealers can still give you a higher interest rate, which could result in higher payments. By getting pre-approved for an auto loan, you lock in the loan amount and interest rate before you negotiate with a dealer, which can save you money in the long run. Find out more about auto loan pre-approval today.