For years you’ve been dreaming about owning a new vehicle and getting rid of the junk you possess right now. Whether you’re looking at driving a new car off the lot or saving your money by purchasing a used car, you’ll most likely need an auto loan. Banks and car dealerships look at your credit report when deciding how much interest to charge you on the loan. The higher your credit score, the lower the interest cost, and vice versa. This means that those who have a low credit score will get charged substantially more. It might not seem fair, but it all comes down to how much of a risk you are.
Car Loan Rates By Credit Score
If you have a high credit score, you won’t have to worry about leaving the dealership without a car. If you have a bad credit score, you also won’t have to worry about leaving the dealership without a car because most dealerships won’t turn anyone away due to bad credit. That’s why you’ll see so many places advertise “No Credit? No Problem!” or “Buy a Car with Guaranteed Approval!” Instead of losing business and declining people the opportunity to purchase a vehicle, the institution you are borrowing from will simply raise the interest of the auto loan.
Those who have bad credit are considered to be at higher risk of missing payments or defaulting on the loan. If a dealership takes a chance on you, they want to make sure they can cover their risk. However, your credit score will significantly improve with consistent payments on the loan, and you could eventually qualify for refinancing.
Generally, if your credit score is between 781-850, you’ll get the best interest rate at around 3-4%. Those with scores of 661-780 can get an interest rate for 4.5-6%. Medium credit scores of 601-660 are looking at an interest rate of 7.5-10.5%. Bad credit scores of 501-600 will get an interest rate of 12-16.5%. And the worst credit scores of 300-500 will get qualified for an interest rate of 14.5-19.5%. The interest rates also vary depending on whether you’re looking at purchasing a new or used car.
What Does Your Credit Score Say About You?
Your credit score is a three-digit number that tells the creditor how much of a risk you are. If you have a consistent payment history and little to no outstanding debt, creditors know you’re more likely to make your monthly payments. They trust you more and give you a lower interest rate. Those who have a consistent score of 850—the highest credit score possible—could get an interest rate as little as 3%!
Inversely, those who have an inconsistent payment history and keep racking up credit card debt are a much bigger risk. If creditors think they have to chase you down to get their money back, your interest rate will be a lot higher – up to 16%! In this case, it would be better to wait on purchasing a car until you can improve your credit score. You can start to repair your credit score by completely paying off each monthly statement or visiting credit repair companies in Philadelphia and the surrounding areas.
Keep in mind, this is how your credit score is calculated each month:
- Payment history – 35%
- Utilization – 30%
- Length of credit history – 15%
- Total accounts – 10%
- Recent inquiries – 10%
If you’re looking to repair your credit score for big future purchases, consider calling Quality Credit Repair for more information. We can go over your credit score, suggest areas of improvement, or even recommend you for debt counseling, all in the Philadelphia area.