While a bad credit rating will very rarely prevent you from securing auto financing, it can keep you from getting a rate that makes buying a new car easy and affordable. Obviously, the better your credit rating is, the better off you are, but there’s more to it than that. Honest Car Dealer has compiled a few facts about just how important your credit rating is to the auto financing process.
How Much Does My Credit Rating Matter?
The most important thing to remember about your credit rating is important enough to repeat: very rarely is your credit so bad that you can’t get an auto loan. That said, if you have a poor credit rating, we recommend shopping for a used car instead of a new car. There is often more wiggle room for negotiation on a used car’s price and financing, and your credit rating will carry less weight.
On a new car, your credit rating will be a bit more important, particularly because you’re often making a much bigger investment than on a used vehicle, but bad credit still isn’t the end of the world. It just might mean a higher APR.
What if I Have Bad Credit or No Credit?
If you have bad credit or no credit, many auto dealers will offer you financing regardless—especially used car dealers. If you desperately need a car right now, then you probably should take the deal, even though it might not be great. Financing a vehicle helps improve your credit rating and make you more attractive to creditors in the long run.
But if you can wait a while, look into building up your credit first. In that time, not only could your credit rating improve enough for a better APR, but you could also save up a down-payment that can help reduce the overall cost as well.
Remember, by making a down-payment, you can reduce the total amount of interest you’ll be paying on your car loan and show the dealer you can be trusted to pay off the loan in full. In short, waiting on purchasing a car in order to build your credit rating and reduce your overall cost is one of the smartest things you can do.
And as always, don’t ever forget that you can walk away from the dealership. They are not the ones doing you a favor when buying a car from them, and you’re under no obligation to purchase anything unless you’re satisfied with both the vehicle and finance agreement.