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Bad Credit Auto Loans: How Credit Score affects your Interest Rate
If you are unfamiliar with the concept of credit score or rank and you don?t know how it is determined, you should do some research on the internet as it won't only affect your auto loan but almost any other financial product you may acquire in the future.
Basics of Credit Score
Credit Score consist on many factors: Your payment history (including any late payments or missed payments that will affect your score negatively), your credit card balances (that will be taken into account when the loan amount is determined), bank accounts (including savings and checking accounts) and any other form of credit including all outstanding personal loans, mortgage loans, store cards, etc.
The reason why credit score is important is that it will determine your eligibility for the loan (a low credit score will conspire against approval) and it will also settle the interest rate you?ll have to pay for the money you borrow.
Credit Score and Loan Interest Rate
You may have heard that some car dealerships offer 0% interest rate on car loans. The truth is that this interest rate is only available to people with perfect credit score. Most people with average to low credit score will have to pay higher interest rates usually around 7% or 8%. Bad Credit applicants may even have to pay an interest rate above 10%.
When you apply for a loan with a dealership, your credit report will be pulled and according to your credit score, the dealer will make a consult, inform your credit score and the interest rate you?ll have to pay will then be determined. What you should know is that Car dealerships charge higher interest rates than regular car loan lenders. If you happen to have bad credit, a car dealership is a terrible option for requesting finance. If you are lucky enough to get approved, the interest rate charged will be unbearable.
Your credit score determines the risk involved for the lender in any financial transaction. However, there are car lenders specialized in dealing with bad credit applicants that do not charge exorbitant interest rates. Actually, there is no logical reason to do so since the bad credit car loan is almost always secured with the car. Therefore, the lender has always the right to repossess the vehicle in case the borrower fails to meet his monthly payments.
Nevertheless, you should always watch your credit score closely and avoid damaging your credit history with late or missing payments, too many outstanding loans and too many loan requests. Your credit score is the indication of your financial health and even when sometimes it can?t get you a better credit score, if it drops too much it will certainly get you declined.
Mary Wise, a professional consultant with twenty years in the financial field, helps people in the process of securing personal loans, mortgage, refinance or consolidation loans and preventing consumers from falling into the hands of fraudulent lenders. Visit her site and get more aid for Bad Credit Auto Loans. If the link doesn?t work, just copy badcreditloanservices.com and paste it in your browser?s address bar. |
Mary Wise
Tags: bad credit auto loans, credit score, credit card balances, finance, lendersSimilar articles
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