Apr 22, 2024 / Auto & RV
When you’re looking to get an auto loan, your credit score plays a big role in whether you qualify and what kind of terms you’ll get. Whether you’re eyeing a new ride or a used one, knowing how your credit score impacts your loan choices can help you make smarter financial moves and score the best deal.
Let’s break down how your credit score ties into auto loans and what steps you can take to boost your chances of landing a good deal.
Your credit score is kind of like a report card that helps you qualify for financial opportunities. Credit scores range from 300 to 850, giving lenders an idea of how you manage credit and the loan terms they can offer you. The good news? No matter where your score stands today, there are always ways to bump it up and get better financial opportunities.
Your credit score can really affect your auto loan situation, from interest rates to how much you can borrow. Here’s the scoop on how it all works:
Your credit score is a big factor when it comes to getting a good loan deal. If you have a higher score, you’ll likely snag lower interest rates, which means your monthly payments will be easier to handle — and you’ll save a good chunk of change over time. For instance, someone with an A+ score might get a rate as low as 3%, while those with a C or D score could be looking at rates of 6% or even higher for the same loan. That difference adds up fast!
Even if your credit score isn’t great, it doesn’t automatically mean you can’t get an auto loan. It might just mean your lender needs some extra paperwork, like proof of income, a co-signer, or a bigger down payment. It may take a little more effort, but you can still get the car you want with the right strategy.
If your credit score is on the lower side, most lenders won’t be able to let you borrow as much — which limits your options a little and may require finding a less expensive vehicle. On top of that, you may need to put down a larger upfront payment.
People with solid credit usually enjoy better loan terms, like longer repayment periods or loans without prepayment penalties. If your score isn’t as strong, you might find that the choices are more limited, which can affect how much you pay each month and your overall loan costs.
If your credit score isn’t quite where you want it to be, don’t sweat it! Here are some easy steps you can take to give your score a little lift before you apply for that auto loan:
First up, check your credit report for any mistakes dragging your score down. Get a free copy from Experian, Equifax, or TransUnion. Then, take a good look for anything that doesn’t look right, like wrong account balances or late payments. If you find something off, don’t hesitate to dispute it.
Next, tackle any existing debt. Focus on paying down those balances as much as you can. Keeping your credit utilization ratio (how much credit you’re using versus your credit limits) under 30% is the way to go.
Your payment history accounts for 35% of your credit score, so be sure to pay your bills on time, including credit cards, loans, and utility bills. If you need a little help staying on track, set up automatic payments or payment reminders that make it easy to see what’s coming due.
Try to steer clear of new credit applications in the months before you apply for an auto loan. Every time you apply, it can temporarily bring down your score due to a hard inquiry.
If you’re just starting out with credit or trying to rebuild, think about getting a small personal loan, consolidating some debt, or using a low-limit credit card. These can help you build a positive payment history and show that you know how to use credit responsibly.
A lower credit score doesn’t mean you’re out of luck. It just means you need the right game plan! Here are some steps to help you secure an auto loan and move forward with confidence:
Your credit score has a pretty big impact on your auto loan options, but it’s not the only factor lenders consider. By working on your credit score and teaming up with a trusted financial partner that has your back, you can secure an auto loan that fits your budget!
At Utah First, we get that everyone’s financial situation is unique, and your credit score shouldn’t be the only thing that keeps you from getting an auto loan. That’s why we work to hook you up with competitive rates and flexible financing options for borrowers of all credit backgrounds.
Ready to hit the road? Get in touch with Utah First today to start improving your credit and drive away in a car you love!