Buying a new or used vehicle is an exciting experience. But before you start thinking about what color, brand, or model you want to buy, everything you need to make sure is fine, and one of the key components of this will be to evaluate your credit score.
If you buy a car 100 percent in cash, your credit score is unlikely to even come up in the conversation. However, if you’re like most Americans, then you probably don’t have to make such a big purchase in cash and that’s where your credit score comes into play.
If you are concerned that your credit score is too low for you to buy a funded car, I’ve got good news and bad news. The good news is that you can breathe a little more easily because relying on it, you will almost certainly find someone willing to fund your car purchase. The bad news is that if you have a bad credit score, it will cost you a lot more to finance that purchase than if you had an immaculate credit history.
So how bad is bad and how good is good?
Your credit score is basically a measure for the lender of how safe a risk it is to borrow money. If you have a perfect credit score, the lender is almost guaranteed not to have you chasing down and repossessing the car on your payments for defaulting.
As such, they are likely to accept a low-interest rate given a low risk. But if your credit score is lower, the chances of you being a flight risk are high, and as such, your interest rate will creep up making your car purchase much more expensive in the long run.
Let’s start with a good start. If your credit score is over 700, you can probably expect to get a 5 percent interest rate. As your credit score falls, prices will crawl up and once you hit 500 or lower, your interest rate will likely be around 15 percent or higher; Yikes!
How can I find out my credit score?
Repeat after me: never, never pay to see your credit score! Your credit score, as reported by the major credit bureaus, is very easy to access: just enter “free credit score” in your search engine. Many credit card companies also show members their credit score as a “perk” of being a card-carrying member.
What should I do if my credit score is low?
It depends on what your options are. If you absolutely have to have a new car now (is that really the case at all?), Then you’re going to settle for a higher interest rate. however, if you have the option, it’s a very good idea to borrow public transportation, ridesharing, walking, cycling, or even a car from a friend, rather than buying a new vehicle with less than stellar credit.
Often times, free credit reports will show you a list of a few reasons why your score is the way it is. If your credit score is low because you have high balances on your credit cards, spend a few months to pay the balance before you go to the car to think a lot about vehicles. If your credit score is low for reasons
If you absolutely need to have a car and are looking to save money, you will likely be considering a used vehicle instead of buying a new one. Aside from the obvious fact that the sticker price will be lower if your monthly car payment is lower, this also allows you to focus the financial scope on fixing your bad credit score.
But you should be aware that interest rates for used cars are often higher than for new cars. The lower the credit score, the greater the difference between the rate used and the new rate. While it will probably still be a better deal for you to buy a used car, it is worth crunching the numbers if you have a really low credit score.
How can you make the process easier-even with a low score?
There is a difference between a lower score because you do not have much credit history and a low score because you have previously gone bankrupt or in arrears on a credit card. If you have a score of less than 700, your job is to document, document, document.
You will mainly need to make the case that you are making payments on time and if you do so successfully, you could see your prices fall to those of those with a perfect credit score.
Be ready to back up your claims with evidence: bring credit card statements, rent payments, and everything that shows you pay on time and in full. If you have a permanent job and are able to put at least 25 percent of the car value in a down payment, this could also help you secure a lower rate.
If your credit score is below 500, these techniques probably won’t work as well for you, but that doesn’t mean you shouldn’t try and you should be prepared for a higher interest rate.
If everything else fails, it might be worth asking a relative or close friend with stellar credit to sign your loan for collaboration. If you do this, you could be able to secure a much better interest rate. Be aware, though, that failure on your part to make payments would mean that they would be over the financial hook for the full amount of the loan.
What can I do after I have registered my loan and costs Sky High?
The most important thing you can do is make timely payments for the next 6 to 12 months. You should also look at your credit score on the repair. Don’t open new credit cards or apply for other loans: these things will be red flags on your credit report. After 6 to 12 months have passed, you should look into options for your auto loan refinancing.