Will your credit score land you a car loan?
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If you’re coming out of bankruptcy, rebuilding your credit score is job one. It’s best to take the long view and work on it slow and steady over time. But what if you need to finance something now? If your car is on its last leg, you are probably hoping you can get a loan before you find yourself Ubering everywhere. What credit score do you need to get a car loan? Here’s what you need to know to get approved for the loan you need.
#1 Income is important too
Your credit score is the first thing a potential lender will check but that’s not the only parameter that’s important. An income verification is also necessary. Just because you have a credit score in the range to get a “yes” that doesn’t mean you’ll be approved. If your income isn’t high enough to afford the car payments, you’ll get a “no.” The lender will take into account not only your income but other debt that they see on your credit report to make this determination.
Bottom line: Don’t try to buy more car than you can afford.
#2 Not all credit scores are the same
When you think “credit score” you probably think there is one three-digit number associated with your finances, but there are three agencies that track and issue credit reports and then a variety of scores that can be calculated from these reports. Check your scores and if one agency has a higher score for you, look at lenders that use that report. You might be more likely to get a “yes” if you cherry pick where you apply based on a better report.
Bottom line: Do your homework before you apply for a loan.
#3 Scores that should get a “yes”
The average credit scores to get a car loan, according to Bankrate, are 655 for a used car and 714 for a new car. However, the higher your score, the lower your interest rate should be. You can get a car loan below 655, but when you drop this low, you’re a serious credit risk for a lender so they treat you as high-risk. See more on subprime loans below. Different lenders have varying criteria and it pays to research lenders before you start car shopping.
Bottom line: Waiting until your score is higher to borrow is better.
#4 The dangers of subprime borrowing
For credit scores above 700, you should be able to borrow at around 4% (or better) for a new car and 5% (or better) for used. But below 660, rates are close to double that and if you are considered subprime (which means below the ideal), you can pay interest rates that are close to credit card level. That’s a bad deal that can come back to haunt you. If your car payments are so high that you struggle to pay them, you can wreck the fresh start you’ve made with your credit score.
Bottom line: Just because you get approved doesn’t mean you should take the loan.
#5 Weigh your alternatives
When you go into a dealership looking at cars, they will try to steer you to what is best for them, not you. They might even tell you to pick out a car and they’ll make the financing work. That’s the opposite way to go about things. Get pre-approved for a loan you can afford then shop based on that limit. Don’t make a loan fit the car, make the car you choose fit the loan that’s best for you. Also, try to borrow less than the maximum amount you’re approved for to give yourself wiggle room.
Bottom line: Do what’s best for you and don’t fall for car salesman tricks.
Come to Credit Score Keys for help!
If you’re coming out of bankruptcy and ready to make the most of your financial fresh start, contact Credit Score Keys. We’ll help you increase your credit score and get on the right track for your financial future. Call 919-495-2365 now for a free consultation.
