When you apply for a car loan, your credit score plays an important role, just as it does when you apply for a credit card or a mortgage. That said, the credit requirements for auto loans can vary considerably among different lenders. Auto lenders also tend to be more forgiving of imperfect credit than other types of lenders, and it’s often a matter of shopping until you find a lender who will work for you at a reasonable rate.
Here are a few tips that will help you understand the credit requirements for auto loans and how to go about your auto loan search whether you have excellent credit, damaged credit, or you’re new to credit.
How your credit score affects your interest rate
According to statistics compiled by Experian Automotive for the first quarter of 2020, average auto loan rates for various credit score ranges looked like this:
In general, borrowers with higher credit scores will be able to qualify for lower interest rates. This is because lenders consider them a less risky investment. However, even borrowers with less than stellar credit can qualify for loans that fit their budget.
To get a sense of what kind of auto loan rate is available to you before purchasing your car, you should be sure to compare rates from several different lenders. Monevo lets you compare personalized loan offers from over 30 different banks and lenders online, for free.
If you decide to go with one of the https://getbadcreditloan.com/payday-loans-wv/lewisburg/ lenders Monevo partners with, you could have access to funds in just a few days. And even if you decide to go with a different lender, it pays to be informed about the rates you qualify for.
The credit score you see may not be what the lender uses
You should always be aware of your credit score before you even apply for an auto loan, or any other loan for that matter. However, it’s important to understand that the credit score you get, whatever the source, almost certainly won’t be the same score that your auto lender will use.
As an example, all three of the major credit bureaus-Experian, TransUnion and Equifax-issue their own credit data, and there are dozens of different credit scores based upon this data. It might be possible that the credit score you have access to is from TransUnion, but the auto lender you apply with is using an Experian score.
Even if you’re looking at a myFICO Score using Experian data, there are many different versions of FICO scores. You might be looking at your FICO Bankcard Score 5, the auto lender might be using FICO Auto Score 8, which will be a little bit different since it looks at credit from the standpoint of an auto lender, and not a credit card lender.
There’s also the fact that the free credit scores typically available from places like Credit Sesame and Credit Karma use Vantage scores, or other FAKO scores. That means that they’re not actual FICO scores, but what are known as educational scores. The difference between a FICO score and an educational score can be 20 or 30 points or more. It’s not to say these free credit-checking services aren’t useful-they certainly are-but you need to understand that the number you’re viewing may differ significantly from what the dealership sees.
Putting a down payment on an auto purchase can be important to auto lenders because they reduce the lender’s risk. They also reduce the chance that you’ll end up owing more on the car than it is worth shortly after making the purchase.