Auto Loan – The Role Credit Plays in Getting Approved
When shopping for a car, there are several things you are likely to think about. These include the make and model of the car you hope to procure for yourself, how much you are willing to pay each month, and the size of the loan you can afford to take out. What is sometimes overlooked is the rate you can be approved for. This has a huge impact on your monthly payments as well as how long you will be paying back the loan and the amount of interest you will pay in the long run. The thing that determines your auto loan interest rate is your credit score.
Before you start shopping around for a car, and even before you explore who to take out a loan with, you should find out what your credit score is. If you walk into the car dealership with no knowledge about your credit score, the dealership is pleased. This is because they will likely be the ones offering you financing options. Some car dealerships take advantage of your ignorance and charge a higher rate than what you deserve. What score, then, will qualify you for the best rates on your auto loan?
First, you should know that financing through a dealership is usually not the most advantageous route to take. You are more likely to get a low rate if you finance through an auto loan company. You can check your credit score online from the three major credit bureaus, namely TransUnion, Experian and Equifax. Your score will range anywhere from 300 to 850, and the higher the number is, the better. What you want is a score between about 700 and 850. This is considered very good credit and will earn you the best rates possible. You can expect about 3% or 4% APR with this kind of excellent score.
Of course, not everyone has near spotless credit. You are likely to still be approved for an auto loan but with a slightly higher rate if your score rests between 600 and 699. Anything below a score of 600 will be more challenging to get the rate you are hoping for. You may be approved for a double-digit rate unless your score is below 500. If this is the case, finding anyone willing to approve your auto loan will be difficult if not impossible. Bad credit loans are offered by some lenders, but you are probably better off saving up the cash if your credit score is under 500.