Bad credit has a huge effect on your car loan and the interest rate that you will get. Depending how bad your credit is you may not even qualify for the loan. There you are sitting at the dealership, buying the car of your dreams. You feel like you are on top of the world. You have saved up $3,000 for the down payment, you paid all your bills on time last year and you just got a big promotion at work.
What happens next is something that you never dreamed of happening to you. The car salesman comes back out of the finance department, shaking his head, and with a sad look and says, “I’m sorry sir, you don’t qualify for this car.” You are in shock! How can that be? You paid your bills on time, you have a cash down payment and you just got a promotion.
A bad credit score can affect your car loan in a number of ways.
Bad Credit Scores And Your Car Loan.
A bad credit score can affect the interest rate you pay on a car loan, and it can also affect whether you get the loan or not. When a lender is looking at your credit they don’t just look at what you did recently, they take a hard long look at your past. They can go back as far as seven years to see if you qualify for the loan.
Lenders and banks use your credit scores, or FICO credit scores to determine if they will make a loan or not. Lender wants to make sure that you’re going to pay back your loan. Credit scores are based on several different areas, including pass history payments, how many inquiries you have on your credit report, the credit limits on your credit cards, what types of credit you have, how long you have had credit, and how much debt you carry.
Now let’s take a look at the example above. You could have had a nice raise, with cash for the down payment and paid all your bills on time in the last 12 months. But, what did your credit history look like before that? Did you miss any payments on your credit cards, or were you late with the payments? Did you co-sign for a loan for a friend? If you did, this loan would show up on your credit report and be figured in on your income to debt ratio.
Before you go out looking for a car and think you’re going to get a great deal, check your credit report first. You may be surprised at what you find.
