As a first-time car buyer, there are a few things you need to know about the lending process and, specifically, credit basics! Understanding how your credit score affects your loan options will help you secure the best possible interest rate. Let’s take a look at exactly what that means.
- Your credit score, a numerical rating that reflects your debt and repayment history, is an important factor in securing your first car loan.
- Basically, the better your credit score, the less interest you’ll end up paying on your first car loan.
- Although your credit score will help determine how much interest you pay on your loan, you can absolutely secure your first car loan with bad credit or no credit!
- While you often don’t need a down payment to secure a car loan, paying one may reduce your monthly payment. And lenders may take a down payment as a good sign that you can manage your finances well!
- It’s easy to get pre-qualified for your first-time car loan! While it’s a good idea to shop around for the best interest rate, you can start by calling your personal bank or visiting the finance department at your local dealership.
What’s a credit score?
Technically, a credit score is a number from 300 to 850 assigned to each person to help lenders determine their creditworthiness. Creditworthiness, in turn, is a measure of how likely a person is to pay back their debts! How is your credit score determined? It’s based on a number of factors, including your total level of debt, number of open accounts, and repayment history.
How does my credit score affect my car loan?
Because lenders determine whether or not you’re likely to pay back your loan based on your credit score, having a higher credit score makes you more likely to secure a car loan.
Not only that, but your interest rate will vary according to your credit score. The higher your score, the lower your potential interest rate! With a lower interest rate, you’ll spend less money overall on your car loan.
Can I buy a car with bad credit or no credit?
Absolutely! There are special first-time car buyer programs designed for drivers who have yet to establish their credit. If you’re new to the U.S. or a young driver with no credit history, you can absolutely find a loan that works for you.
There are also lenders that work with shoppers who have subprime credit, or a credit score between 300 and 600. It’s not unusual for a first-time buyer to have low credit. Shop around and you’re certain to find a lender with a program that meets your needs.
Do I need a down payment?
Often, you don’t need a down payment to secure a loan on a vehicle. That’s true for any buyer, whether it’s your first time or not. However, putting a down payment on your loan shows your lender that you’re capable of managing your finances well. And a downpayment may also lower your monthly payment and reduce the amount of interest you pay overall, making it a great idea for you as well!
How do I get pre-qualified?
You can secure financing through your bank or credit union. Alternatively, you can visit the finance department at your local dealership, where they’ll help you figure out your best options. Dealerships work with big financial institutions, making it easy for you to get approved, no matter your credit history or down payment.