Get Good Car Loan Rates With a Low Credit Score
It’s no secret that a good credit score is the key to having favorable deals when financing the purchase of a vehicle through an auto loan Ashland KY. A good credit rating will give you lower rates and a more favorable payment structure.
Meanwhile, a low credit score would afford you a deal in the subprime category, which you might not necessarily be happy with. That’s because a low rating indicates a bigger risk for lending institutions, and as such, they require the lender to pay more.
Due to pandemic, unfortunately, lenders have only been stricter and choosier about their borrowers. So how can you get favorable vehicle loan rates despite having a mediocre to low credit score? First, let’s define what good and bad credit ratings are.
Credit scores are formulated using various factors, including payment history, credit age, and amount of debt, from your previous and current credit cards. These ratings give lenders an idea about your potential credit risk and the ability to pay loans. Listed below are the different categories of ratings according to credit reporting agency Experian:
- Excellent (800-850): Comprised of 21 percent of borrowers, individuals who fall in this category get the best rates and most favorable terms for loans.
- Very Good (740-799): This category is made up of 25 percent of borrowers. People who belong to this segment are given better-than-average rates.
- Good (670-739): Covering 21 percent of borrowers, this group gets decent rates. Only 8 percent of this category is likely to become delinquent on payments.
- Fair (580-669): Individuals in this group are pushed to the subprime category. It is comprised of 17 percent of borrowers.
- Poor (300-579): This segment, known as the deep subprime, is made up of 16 percent of borrowers. People in this category will likely be charged with extra fees and deposits, and have a higher chance of being rejected.
According to TrueCar analysts, more than five million auto loans per year fall under the subprime or deep subprime category. If you’re one of the people who belong to this group, here’s how you can improve your vehicle loan rate by as low as possible.
Cut the Middleman
Car dealerships offer lending options that they have brokered. As a result, they typically provide more expensive rates as they take a cut for acting as a middleman.
To obtain favorable rates, your best course of action is to see what your bank or credit union is offering, instead of the car dealer. Some banks and credit unions will prequalify you for the amount you’re trying to secure, with a forgiving credit check.
No Credit History?
Having little to no credit history also produces a low credit rating. That’s because you currently have no way to prove that you are a responsible borrower.
Having no credit history is a somewhat disadvantageous position when it comes to taking out a loan. However, lenders are more forgiving of people with zero credit history than those who obtained a low credit rating due to financial problems.
Unfortunately, some lending institutions might still be hesitant to grant you an auto loan in Ashland, KY if you have no credit history. But there are alternative routes you can take as a car buyer.
Enlisting a co-signer, usually, a relative or a close friend can increase your chances of securing a car loan. Your co-signer can help by vouching for you and lending you their good credit score. Essentially, the co-signer promises to pay for the vehicle if you are unable to.
Reaching out to your bank or credit union is another viable path for borrowers without credit. The longer you’re a member, the higher your chance is of getting a loan approved.
Keep Track of Your Score
It’s recommended to check your credit score at least once every year. This allows you to know where you stand, and manage expectations regarding your loan eligibility. Doing so also helps you become aware of what you need to do to improve your rating.
Nonprofit consumer organization Consumer Reports and vehicle loan experts still recommend raising your credit score before applying for a loan. However, it’s understandable that the ideal scenario doesn’t apply to everyone, with some not having ample time to improve their rating.