Financing a Vehicle: How a Good Credit Score Affects Your Loan

Whether or not you have a good credit score will directly affect what interest rates you’ll be offered when financing a vehicle purchase. Lending agents use a buyer’s credit score to determine how likely they are to follow through with repayment. With a good credit score, lenders assume you will pay them back as agreed, and with a low or nonexistent credit score, lenders assume there is more risk associated with lending to you. 

When you finance through a dealership, the individuals you work with will help you to secure a lender. This is nice because dealerships have built relationships with many lenders, and they’ll likely know which ones would be most able to give you a better interest rate depending on your specific situation. 

What If I Have No Credit? 

You can make a vehicle purchase without a credit score. Here are some tips if you do not have credit but want or need to purchase a vehicle. 

Bring Your Paystub

Buyers with less-than-excellent credit can still secure a great finance agreement. Many lenders will consider other factors like whether a buyer has a stable income and a low debt-to-income ratio. If you have these two things, even without a good credit score, you can typically secure a lower interest rate on a vehicle purchase. 

Get a Co-signer

While this option might not be possible for everyone, having someone with good credit co-sign your finance agreement can effectively lower your interest costs. It’s a way to increase your credibility in the eyes of potential lending agents. 

Let Your Dealership Know Ahead of Time

There are lenders who work with individuals who have low or no credit – it’s just a matter of finding them. Some dealerships are more accustomed to working with individuals with no credit, and they will have relationships with lenders who do as well. If this is your situation, I recommend letting a sales rep know ahead of time. This way, they can do some legwork before you come in and help determine what sort of financing you will be able to qualify for, and at what interest rate. 

How To Increase Your Credit Score

Without a credit score, you are more likely to pay a higher interest rate. But, financing a vehicle purchase and making consistent, on-time payments is a great way to improve your credit score. Also, paying your car loan off more quickly than your loan term requires can improve your credit score even faster.  

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