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.
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.