How Your Credit Score Affects Your Car Loan

Your credit score has a direct impact on your car loan. Your credit score will affect the types of car loans that you will qualify for. Here are a few different ways that your credit score can affect your car loan. 

Approval 

The first thing that it will affect is the approval of the loan. If your credit score is bad, a lender will decline your application for a loan. If you cannot get the loan that you need, you will have to pay the money for the car in cash or not purchase a car at all. Credit is one of the first things a lender will examine when considering your application.

Interest Rate

Besides the approval of the application, a bad credit score will also adversely affect the interest rate that you are offered. The higher your credit score is, the lower your interest rate will be. If you have a bad credit score, you could pay thousands of dollars in extra interest over the life of the loan. Having a bad or low credit score can be expensive. For example, if someone with a good credit score is purchasing a car, they may be offered a 5 percent rate. A person with a bad credit score may be offered a 10 percent rate, bringing the monthly payments up by at least $300 dollars.

Higher Down Payment

Also, a low credit score means you may be required to come up with a larger down payment. A lender may be less willing to finance the entire amount of the car because you are a high risk borrower.

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