Car shopping may be one of the most daunting tasks in life. And if you’re not fortunate enough to have received financial help or saved enough money, it can also be one of the most expensive. This is because, contrary to popular belief, there are factors that will determine the amount of financing you get for a car loan. Whether it’s a traditional loan or a lease, the amount you’ll have to pay with each payment will vary by each individual car’s price tag and your credit score.
What’s a good credit score?
An individual’s credit score is determined by their credit history and how effective they have been in loan repayment. A good credit score is considered to be 700 and above. Such a credit score is achieved through the timely repayment of loans and avoiding defaulting on any loan. The main benefit of a good credit score when you spend money to buy a car is that the overall car’s price turns out to be less because you get low-interest loans so you can save money on transportation. A good credit score also means that you can get access to a high amount of loan that would facilitate you to buy your dream car without seeking external financing options.
What is the ideal credit score for a car loan?
The credit score for car loans that most major lenders look for is a FICO score of at least 700 or higher. Such a credit score shows that you have a good history of repaying loans on time. Therefore, many lenders would be willing to offer you a high amount of low-interest loans to purchase your dream car. This credit score will qualify you for the interest of 5.07% on new cars and 5.32% on used cars. Or sell your car using Sell My Classic Car Atlanta GA.
A good credit score would enable a person to get care at a lower price than a person with a bad credit score. A score of 650 to 699 will qualify you for an interest rate of 11.69% on new cars and 11.94 on used cars. A credit score of 450 to 649 will qualify you for an interest rate of 17.08% for new cars and 17.33% for used cars. A score below 450 is rarely approved for car loans. However, if approved, the person would get a car loan at an interest rate of 18% for new cars and 18.25 for used cars. These interest rates show how important it is for a person to work on having a good credit score. A late payment credit score tends to be lower and shows the level of risk that a lender places them in when allocating such a person a loan.
If your credit score is good, you will have no challenge in getting approval from car loan lenders. The number of car loans allocated by many lenders will depend on your credit score. This means that if you have a low credit score, you have to shop for cheaper or second-hand cars that you can afford using the little amount allocated by lenders.
What to do if you have a bad credit score
If you have a lower credit score, there are still options available for you to buy your preferred car. If you have a low FICO score, you already know that it is difficult to purchase a car loan. Banks won’t approve your loan if your credit score is too low because they assume it carries additional risk such as defaulting or late repayments. It is usually a good idea to get a secured car loan before applying for an unsecured car loan. Secured loans typically have lower monthly payments and are easier to qualify for.
The bottom line for the amount of credit score needed to buy a car is that any score can qualify you for a loan depending on the preferences of the lending institution. The only disadvantage is that the different credit scores will qualify people for different loan amounts and different interest rates. Hence, it is important to work on having a good credit score to ensure you qualify for the most favorable loans in the future.