Getting approved for any type of loan is easy to do if you have great credit, but getting approved with little or bad credit is not so simple. If you really need a car and are afraid you will not get approved for a loan because of your credit score, you will be happy to find out that this is probably not true. Almost anyone can get a car loan; however, loans are based on credit scores. With great credit, you can get a great loan. With little or poor credit, you can get a loan, but the terms may not be as great. Here are several things you should understand about car loans.
How Credit Scores Affect Loans
Credit scores that are above 660 are typically able to qualify for the best rates available with auto financing. Below this score, the rates are dependent upon the score a person has, and they are often divided into several categories.
The first category is called nonprime and this is typically any score that is over 600. For a score between 501 and 600, the category is called subprime, and anything below 500 is considered deep subprime. People in the deep subprime category will have the most trouble finding loans, and they will be subject to the highest interest rates on the loans they are approved for.
Tips For Saving Money If Your Score Is Low
If you want to apply for a car loan, it might be wise to look up your score before you begin shopping for a car and a loan. You can receive a free copy of your credit report once a year; however, you may have to pay extra to retrieve your actual credit score.
If you find that your score is in the subprime or deep subprime category, you could go ahead and apply for a loan with a lender that specializes in auto financing for people with bad credit. You will probably have no trouble getting a car loan; however, your interest rate could be 12.9% or higher. It will be hard to find a loan with a lower rate than this.
There is a way you might be able to qualify for a better rate though, but this will involve shopping for a brand-new car. New car loans typically have lower interest rates than used car loans, but new cars also cost a lot more money in most cases.
Another option you have is to save up more money to use as a down payment. While this will not help you get a lower interest rate, it will help you finance less money, which will help you save some money on interest. You could also try to pay off the loan faster by paying extra on your payments each month. This would reduce the total amount of interest you would pay over the life of the loan.
The only other option you really have is to wait to buy a car. If you wait, you could spend time working on your credit score. Once your credit score is high enough to qualify for a better rate, you could then go and shop for a car to buy.
Keep in mind that getting a car loan is a great way to improve your credit. Even if you have to settle for a loan with a high interest rate on it, each month when you make your payment, your credit score will improve just a little.
If you have bad credit and would like to learn what your options are for buying a new or used car, look for a company that specializes in auto financing, such as Leopardi Auto Sales.