Wednesday, October 12, 2016

Why a Bad Credit Score Affects Your Auto Loan?

In case you’re wondering, your credit score is calculated based on your credit history, and it can dictate the type of interest you’ll be paying on your car loan. That’s why experts often recommend having a good credit score when applying for an auto loan.

For those with bad credit scores, however, getting approved for an auto loan might be more difficult. You might be thinking – in what way does a bad credit affect your auto loan?

It all boils down in the interest rates

Generally, those with higher credit scores (i.e. those with a credit score of 740 or higher) will get the best interest rates on a car loan. In fact, they may even secure an auto loan for as low as zero percent. Conversely, those with bad credit scores are facing interest rates as high as 20 or 30 percent. That means paying a thousand dollars more for an automobile.

Reassuring the lenders

Why does this happen, though? This is because lenders want to be assured that their borrowers will pay their money back in full and on time. They feel more at ease with borrowers who have a record of paying their bills on time. On the other hand, lenders are more wary of borrowers who have a high debt-to-income ratio and a bad payment history.

Having a bad credit won’t stop you from owning a new car, though, especially if you seek help from the right dealerships.

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