You want to buy a car, but you don’t know if your credit is good enough. The good news is that car dealers will usually find some way to get you financed even if you don’t have the best credit score. But with a good credit score, you can get the best terms on your loan, which will save you money in the end.
So what’s the target? It’s safe to say car dealers want to see a credit score of at least 700. Why so high? That’s because a 700 credit score shows that you are financially responsible. Chances are that you don’t have many late payments or maxed out credit scores. If you did, you wouldn’t have a credit score over 700.
Does that mean you can’t get a car loan if you have a credit score lower than 700? It doesn’t – there are plenty of loans out there for you. What it does mean is that you’ll likely pay higher interest rates and/or fees for the loan.
Maximize Your Other Factors
Don’t make the mistake of focusing strictly on your credit score. It’s not uncommon for lenders to give a borrower a car loan with a 600 credit score or even lower. What makes them do it? It’s usually the compensating factors they have.
Borrowers tend to forget that there’s more to their loan application than their credit score. Lenders like to see that you are a well-rounded borrower. What does that mean? Basically, you should have stable income and employment, assets on hand, and even own your own home. All of these factors add up to make a responsible borrower.
Your stable income and employment show lenders that you have the ability to cover the car payment. If you change jobs every few months, you would pose a high risk to the lender. How do they know that you will be able to keep your job or find a new job to replace the one you left? A borrower with stable income/employment is a better risk for the lender.
If you have assets on hand, you show that you can cover the car payment even if your income stopped. Let’s say for example that you fell ill and couldn’t work for six months. If you have money saved, you could still cover your bills. Without those assets on hand, you could find yourself in financial distress, which could lead to defaulting on your car loan.
Finally, owning your own home shows financial responsibility. If you were able to qualify for a mortgage and you make those mortgage payments on time, it shows an auto lender that you can handle your financial responsibilities.
Just like when you apply for any loan, take the time to prepare yourself. You want the highest credit score possible as well as the best qualifying factors. This will give you the best chance not only at approval, but at securing the best interest rates and terms on your loan.