Impact of Credit Score on Car Buying
- August 3, 2021
- Blog, Car Loans
- Posted by firstname.lastname@example.org
- Comments Off on Impact of Credit Score on Car Buying
While many of us are aware that credit score matters for any situation where you’re taking out financing, such as a home or used car purchase, fewer know exactly why this is the case. Credit score, a reflection of your credit history and repayment capabilities over a period of time, is one of several factors that plays a major role in getting you approved for a given auto loan.
At Adonis Auto Group, we’re happy to not only offer a huge range of used vehicles in Arlington and surrounding areas, but also to offer bad- and low-credit loan options for those who have lower credit scores, and even no-credit loans in some cases. Why does credit matter in the used car loan and purchasing world, and how can you ensure your credit is where it needs to be? Here’s a primer.
Why Good Credit Matters
No matter which sort of financing you’re looking into for a used car, whether it’s from a bank, dealership or credit union, one universal factor is always present: The use of credit score. While this isn’t the only variable considered, it’s a major one in virtually every case.
The reasons for this are relatively straightforward. If you have a higher credit score, one well above 700 for instance, this signals a generally positive credit history, one where you haven’t regularly been late on payments, haven’t defaulted on loans, and haven’t caused other issues for the lender. As a result, future lenders will be willing to give you more favorable interest rates and loan terms, as they’re more confident in your ability to repay than they would be for someone with a much lower score.
Now, this isn’t to say that it’s impossible to get a loan if you have low credit. As we noted above, one of our specialties is offering such loans. However, those with lower scores do have to realize that their approval for a loan may come with certain additional strings attached, such as higher interest rates or lower total loan amounts offered – this is because the lender is taking a greater risk by loaning to such individuals. However, options do exist to help you here, and our team will assist you in locating them.
General Ranges Needed for Used Car Purchase
If you’re looking into a used car purchase, what are the general credit score ranges at play? Here are a few very basic tiers to consider:
- Superprime: The very best credit scores, those ranging from 781 through 850 (this is the maximum credit score), are referred to as superprime. Applicants in this range will have the least trouble qualifying for loans, and will be offered the lowest mortgage rates with the most favorable terms.
- Prime: Credit scores than range from 661 up through 780 are generally considered prime, or above-average. These scores are still solid to very good, especially in the upper range, and will allow those who carry them to qualify for slightly higher rates than superprime – but still very good ones overall.
- Near-prime: The next tier here is known as near-prime, referring to scores between 601-660. Again, while approval for loans regularly happens for those in this range, these loans will generally come with higher interest rates and slightly worse terms.
- Subprime: Any score under 600 is considered subprime, and these interest rates will be some of the highest due to the risk the lender is taking on.
Ways to Increase Credit Score
Luckily, credit score is not a fixed metric. It changes over time, and there are specific actions you can take to improve it. Here are some general tips:
- On-time payments: One major factor in credit score is you making your payments on-time and without fail. To whatever degree you’re able, do your best to avoid any missed or late payments on any debt you have, including student loans. If you have trouble keeping track of your various payments, set up reminders or automatic payment features.
- Credit utilization ratio: Another major variable in credit score calculation is what percentage of your available credit is being used, with 30-35% usually serving as rough benchmarks here. If you’re using below this threshold on a monthly basis, you’re usually in pretty good shape; too far above it, however, and your score will drop.
- Length of history: Your credit score goes up the longer your history is, so don’t close out old credit cards – even if you’re not using them. If the card requires a purchase to remain open, make one small purchase each year and pay it down immediately.
Checking in Advance
If you know you’ll be considering a used vehicle in the near future, it pays to check your credit score at least a month or two in advance, if not significantly longer. If your score comes in lower than you’d like, this gives you time to take the steps above – plus others that may be offered by a financial consultant – to improve your score ahead of applying for a loan. Making the jump from a lower tier into a higher one for this purpose can save you thousands of dollars, so it’s worth finding out in advance.
While it’s true that credit score is a huge factor in any auto loan, it’s important to realize it’s not the only one. Another major variable here is the down payment you plan to put down – if this number is very high, many lenders will be more flexible with loan approval even if you have a lower credit score. In addition, other factors like special incentives, promotional APRs and others should be considered to help you get the very best deal possible.
For more on why credit matters in the used car loan and purchasing realm, or to learn about any of our used cars for sale or bad- and no-credit loans, speak to the staff at Adonis Auto Group today.