Credit Scores Impact Car Financing

by Don Elliott on May 3, 2012

Some car dealer advertising suggests they provide “guaranteed auto financing. Nobody walks!” Sure, they will get you a car but at what price? Your credit score is a big factor when the time comes to buying a new or used car.

Unfortunately, uncertainty over personal credit causes many car buyers to:

  • Pay too much for their car
  • Pay too much for their financing
  • Avoid buying a car when they really need one
  • Buy the wrong car because their dealer seemed to be their last resource
  • Focus on the financing and not used car value

According to a survey done in February by FreeScore.com, 66% of U.S. consumers think it will be harder to obtain a car loan in 2012 than it was in 2011. In fact, the FreeScore.com report cites data information provider, Experian, noted that new vehicle loan interest rates have dropped from 4.84 percent to 4.52 since the fourth quarter of 2011. Car dealers are selling more cars and trucks to people with good and bad credit and often at better rates.

The FreeScore.com survey found that one in three car buyers failed to check their credit scores before buying their last car. To enter a major transaction like a vehicle purchase, it is imperative to know the cost of auto financing beforehand.

Consumers are entitled to a free credit score report once a year from each of the three credit reporting agencies, Experian, TransUnion and Equifax. If you are turned down for credit, you are also entitled to a free report. It is estimated that as many as one in four credit reports contain information with errors that can impact the FICO® credit score.

FICO® credit scores range from 300 to 850. Consumers with scores over 720 qualify for the best interest rates. Ratings that are less than 620 are considered subprime, triggering variable rates that can be very expensive and burdensome. Scores between 620 and 720 are an area where car buyers should consider shopping for the best available interest rates. It is possible to save a considerable amount of money by finding a lender who is buying a little deeper to attract more business.

Carrie Coghill, director of consumer research at FreeScore.com states, “Knowledge of credit scores in advance of an auto purchase can help consumers in the loan process. Additionally, those who know they have good scores are in a stronger position to negotiate a better deal. Conversely those with the lowest credit scores will know in advance that they may find it more difficult to obtain an auto loan, and may try to take steps to take charge of their credit standing in order to secure the best interest rate possible.”

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