Do you use your credit card a lot? That’s good news. Lots of car dealers will be interested in offering you cars. Lenders will use that three-digit number to determine if you qualify for a loan. Then, the next question will be “what kind of credit score to buy a car?”
How Your Credit Score Affects Car Loan
You need to know that your credit scores will affect your car loan and the interest rate you will pay. Low credit scores mean fewer car loan offers and higher interest rates. So, before you are getting excited about buying a new car, it is wise to check your credit reports beforehand.
Your credit scores will affect your car loan in the following ways.
Lower Your Chance to Get a Loan
There were only 38.3% of loans issued to borrowers with credit scores of 660 or lower in the third quarter of 2018. This means, if your credit score is 660 or lower, the chance you will get the loan is around 38%.
According to lenders, you must at least 718 credit scores if you want to apply for a loan for a new car. Even for used car loans, your credit score should be at least 661. Those are the answers to “what kind of credit score to buy a car?” question.
Drive-Up the Interest Rate
Average loan interest rates for those with 660 or lower credit scores ranged from 7.52% to 14.41% for new cars in the third quarter of 2018. Because some with fewer credit scores are considered having a lower economy which cannot afford to pay more. To cope with the risk of not being paid back, the lenders offer a higher interest rate.
Work and Save
If your credit scores have not reached the minimum figure to make credit for a car, then you should wait. By “wait,” we mean working on your credit scores and save some money.
Working on Credit Scores
You can increase your credit scores by doing the following:
- Don’t be late when it comes the time to pay the bills,
- Keep your credit balances and debts low, and
- Only open new credit when you need it.
You also need to periodically check your credit report for errors.
Save for a Down Payment
While you are working on your credit scores, you can save some cash for a down payment. The more you save money for a down payment, the lesser the interest rates you will pay.
Ways to Get Approved for a Loan
If you experience a sudden job transfer to another city, you cannot wait to save and work on your credit scores. If that’s the case and your current credit scores don’t reach the minimum scores to get approval, you will have to do the following.
Work on Credit Scores Later
Whether you have time, working on credit scores is crucial. If you don’t have time now, you can do it after your purchase. You can get a lower interest rate in the future.
Get a Co-Signer
You can get someone with a higher credit score to apply for your loan. After your credit scores have improved, you can remove the co-signer from the loan if you refinance.
After knowing the answer to “what kind of credit score to buy a car”, you will have no problem with car loans anymore.