Getting a car loan is not a terribly difficult thing to do. Car dealers are eager to sell cars, even to individuals with low credit scores. But what if waiting 6-12 months and working on your credit score would save you $6,000 or more on your car loan? A target credit score of 670 or above can end up saving you thousands of dollars on your car loan. In this article we’ll break down how putting some time into raising your credit score before purchasing a car can save you thousands.
Car Loan Rates
Before you walk on to car dealership lot make sure you know what your current credit score is. If your credit score is in the low 700s you might see rates on used cars around 5% compared with 25% with a credit score of 580.
Let’s say you’re buying a used car for $10,000. If your score is 670, you might pay 5% interest, $189 monthly payments, and end up paying a total of $11,323 on the vehicle when it’s all said and done. The same person with a 580 score, only 90 points less, can end up paying 25% interest, $294 monthly payments, and end up paying a total of $17,611. Those 90 points cost you $6,288. Keep in mind, this is for a car that only costs $10,000. Imagine the extra costs of getting a bad rate with newer car?
Does a Car Loan Build Credit?
Yes, having a car loan can build credit in two important ways – payment history and credit mix. Payment history is your track record of paying bills on time. It’s the most single important factor when determining your credit score. Credit mix shows the types of credit lenders have granted. If you only have credit cards on your record, a car loan can help, but you should never buy a car to build your credit.
Before you Apply for a Car Loan
If you have time to delay your car purchase and build your credit you should. Just raising your score 90 points can mean the difference between thousands of dollars. Ways you can build your credit:
- Pay your bills on time. A payment that goes 30 days past due can do a lot of damage to your score. Set you payments on auto-pay if you have a hard time remembering due dates.
- Lower your high balance credit cards. Your credit utilization is how much debt you have compared to your limit. Getting your balances down below 30% can give your credit score a nice bump.
- Don’t apply for more credit within six months of applying for your car loan.
Need Help Boosting Your Credit Score?
Navigating the world of credit repair can be frustrating, especially with all the laws and regulations that seem to be constantly changing. It’s a full-time job to keep up with everything. If you need help repairing your credit and cleaning and raising your credit score, working with an experienced credit repair company is the fast way to get your credit back on track.
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