If you are gearing up to get yourself an automobile, you should take a good, hard look at your finances beforehand. You might check on your savings to make sure you have enough to pay for everything, but you should also look to see that you have a good credit score. A high score can make all the difference in the world when it comes to your loan size and interest rate. The sooner you start repairing it, the better chance you will have to get the car of your dreams. Here are a few ways your credit score plays a part in getting an auto loan:
Approval and rejection
When you fill out your application for a loan, you will need a number of things, including pay stubs, a list of references and your credit report. A lender will look at your report to check your score and determine whether you're likely to be responsible in paying back your debt. While every lender has different approval parameters, many will look at your FICO credit score, and if it is lower than 500, your application could be turned down.
Interest rates received
While some lenders may approve you for a loan if you have a low credit score, you could still be stuck with a high interest rate. Applicants with higher scores tend to get lower rates, so it is in your best interest to improve your score by making credit card payments on time and decreasing your balance. A 1-percent difference for your rates can result in saving a few thousand dollars a year.
High interest rates will be a factor in your monthly payments. If you have a lower score, you will likely have expensive interest charges, which will result in you having to pay more each month. If you are on a tight budget, this could be a problem, and you could be forced to find a less expensive car that you may not want. You can always look at refinancing your loan at a later time, but remember that you will need to improve your credit score to get there.
Down payment amount
High credit scores can also help whittle down how much you have to contribute to your down payment. This can help you get the car you want quicker, as opposed to needing to save up money for an expensive down payment.