Your Credit Scores Can Affect Car Financing
It is a common assumption among people they will not be affected by adverse credit ratings when they apply for car financing. This is mainly because of the belief that car financing is a secured loan. The lenders may not be overly concerned about the credit ratings of the borrower. However, you are advised to check your standing with the agencies by obtaining a credit report. This it will give you a clear understanding of whether you are eligible for the car financing or not.
Why Are Lenders Giving Importance To Credit Ratings For Car Financing?
It is a common misconception among many people they need to have average credit ratings in order to qualify for the cheapest auto loans. According to reports available from the rating agencies, approximately two-thirds of the applications for car financing which were approved came from people who had prime credit ratings or higher. 44% of the borrowers were in the highest category which is known as the super prime category.
Lenders are looking to obtain information about your past credit history when you make an application for car financing. It helps them decide whether to offer you the financing you need at affordable rates of interest for you. Also establishing whether to classify you in the subprime category to approve the financing at higher rates of interest. Lenders are trying to ensure they do not get trapped by advancing loans to applicants who may not have the capability to make repayments according to schedule.
Before you make an application for the car financing you need you must obtain a credit report from one of three agencies by making online applications for the same. Offers to give you your credit report free of charge will also be available from banks, credit unions, and credit card issuers. Having a credit report will put you in a better position to negotiate with the lender for lower interest rates and better terms and conditions for the car financing you are looking to obtain.
What Do Lenders Consider In The Scores When Approving Car Financing?
Lenders are often not interested in advancing car financing to people who do not have appropriate credit scores. The scores have been divided into separate tiers starting from super prime plus and going down to deep subprime with scores ranging from 750+ to below 550. The average score of people that were obtaining car financing in mid-2014 was in the region of 681 which is considered extremely good. As mentioned earlier, your chances of getting car financing at affordable rates of interest and favorable terms and conditions will become better if your scores are in the region of 750+ which puts you in the super prime plus category. The reverse will be true if you are categorized in the deep subprime group.
How to Obtain Car Financing If Your Credit Scores Are Bad?
Obtaining a credit report is essential not just to understand your credit scores but also to rectify any errors you may notice in the report. You will not be able to act on your own but will need to write to the agency and point out the errors before they are rectified. This will certainly take some time and will force you to delay the purchase of the vehicle. On the other hand, if you are in urgent need of the vehicle and cannot afford to wait for a long time you will need to compromise both on the terms and conditions and the interest rates of the car financing you need.
Some banks may reject your application for car financing despite having great credit scores. You can also come across lenders who are interested in approving your application for car financing despite having deep subprime credit scores. Therefore it is important for you to understand that while your credit scores can affect car financing that you need you can also obtain the financing and purchase a car if you are willing to compromise on certain aspects.
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