What Credit Score Do I Need For A Car Loan?

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Beware Of These Car Loan Mistakes

Whether you have great credit, really bad credit, or you’re somewhere in between, it’s important to avoid a few potentially costly mistakes.

  1. Long term loans. While the industry standard was previously 48 and 60 month loan options, terms of 72 months and longer are now common. I even saw 96 month (eight year) loan terms. Auto dealers use these long terms to reduce monthly payments and allow buyers to qualify for more expensive vehicles. The problem: Extending a loan can dramatically increase your interest costs. For example, a $ 30,000 car loan at 8% interest for 60 months will cost you $ 6,498 in total interest. A loan of the same size with the same interest rate for 84 months would cost $ 9,277 in interest. Long-term loans are useful for borrowers who cannot afford the monthly payments on a short-term loan, but a long-term loan shouldn’t be yours. first choice.
  2. The “monthly payment trap”. Car salespeople like to ask you how much you plan to spend per month. You should not answer this question under any circumstances. This effectively gives permission to charge you as much as they want in interest (and for the car itself), as long as the monthly payment is within your limit. The price of the vehicle, the price of your trade-in, and the interest rate on your loan should be three separate negotiations.
  3. Transfer your existing car loan to your new one. You may see ads that say something like “we’ll refund your transaction, no matter how much you owe”. Well, if your business is worth less than the amount you owe, many finance companies will add the difference to your new car loan. This is how people end up with a $ 35,000 loan for a $ 30,000 car – avoid this type of situation at all costs.
  4. Overpriced extensions. Salespeople, especially in the financial department, love to try and sell you these products. When I bought my 2013 Chevy Camaro, the dealership’s CFO offered to sell me upholstery treatment for $ 12 per month added to my loan payment, for a total of $ 720 on a loan of $ 60. month. I said no, only to learn that he had already been installed in the car, and they were going to give it to me whether I paid for it or not. Needless to say, I will never do business with this dealer again.

Perhaps the most important suggestion I can give you, especially if you have average credit, is to shop around for your next car loan. You might be surprised at the huge difference in the offers you receive.

Many people make the mistake of taking the first loan offer they get (usually from the dealership). It’s also a good idea to get pre-approved from your bank as well as a few other lenders. Online lenders and credit unions tend to be great sources of low cost loan options. Not only are you likely to find the cheapest rate this way, but then you will have a pre-approval letter to bring the dealership with you.

The best part is that applying for a few auto loans won’t hurt your credit. The FICO credit scoring formula specifically allows you to shop around for rates. All auto loan or mortgage requests that arise within 45 days are processed as one request for rating purposes. In other words, whether you apply for a car loan or 10, it will have the exact same impact on your credit score.

Buy a car now or work on credit?

The bottom line is that there is no minimum FICO® score to get a car loan. There is actually a good chance that you can get approved for a car loan no matter how bad your credit is.

That said, subprime and deep subprime auto loans can be extremely expensive, so just because you can get a car loan with bad credit doesn’t necessarily mean you should. The savings resulting from a moderate score increase can be substantial, so it might be better to wait a bit and work on rebuilding your credit before purchasing your next car.

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