Why Your Credit Score Matters When Getting an Auto Loan

When the time comes to start looking for a new or used vehicle, you will also likely be looking for a auto loan, and if you're getting a vehicle loan you'll want to make sure your credit score looks good. Your credit score matters when getting an auto loan, since it will be the deciding factor for what interest rate you will pay on the loan.

Credit score requirements can vary quite a bit from lender to lender, particularly if you're financing through a dealership. That is why you need to know and understand your credit score—so you can know what to expect when purchasing that new or used vehicle.

Why a Good Credit Score for an Auto Loan Matters

Your Credit Score Decides How Much Interest You'll Pay

Typically, borrowers with high credit scores get the best interest rates on loans, including auto loans. If your credit score is in the Very Good to Exceptional range (720-850), you are most likely going to receive a lenders' lowest interest rate. This means you'll pay a lower amount of interest over the life of the loan. 

If your credit score is in the Good range (690-719), though,  you'll end up paying a higher interest rate than you would if your credit was Very Good or Exceptional, and if your credit score is lower than 690 you'll get yet a higher interest rate. If your credit score is 630 or below, you'll be charged the highest interest rate, provided the lending advisor approves your auto loan application in the first place.

Your Credit Score Can Determine if You Get the Auto Loan or Not

While a good credit score can get you a loan with a lower interest rate, it may also be the deciding factor in whether or not you'll get the auto loan in the first place. In general, most banks require a credit score of 600 to qualify you for a traditional auto loan. Credit unions like First Alliance probably won't turn you away if your credit score is below that, but you will have to talk with a loan advisor about why you need the car, why your credit score is low and how you plan on paying off the auto loan. 

How to Check Your Credit Score Before Applying for an Auto Loan

With so much about your auto loan depending on your credit score, it's a good idea to know what your credit score is before you apply for an auto loan. Fortunately, this is pretty easy. You can usually get free credit scores from websites like Credit Karma, and if you're a First Alliance Credit Union member, you can check your credit score for free through our online banking platform and mobile app. 

If you want to be absolutely sure about your credit score, though, your best bet is to contact the three credit reporting bureaus--Experian, Equifax and TransUnion--to get your credit report. You're entitled to one free credit report from each of these companies a year. 

It's worth pointing out that if you're not sure whether your credit score is good enough to get a good interest rate, you can talk with a creditor about getting prequalified for an auto loan. When you get prequalified, a lending advisor will make a soft credit check, and use the information they receive to tell you how much you'll be able to borrow and what the rate will be. 

What to do if you Need to Improve Your Credit Score

If your credit score falls in the very good range, take a second to congratulate yourself before applying for a car loan. However, if you have a less-than-perfect credit score, you'll want to improve it. Take the following steps to start raising your credit score: 

• Pay all of your bills on time each month and avoid late payments whenever possible
• Keep your credit balances low to your credit limits.
• Pay down any existing debts
• Don’t open any new credit unless you really need to
• Work with your lender to help you set up a plan to boost your credit score

Get Approved for an Auto Loan Even with a Low Credit Score at First Alliance Credit Union 

Your credit score plays a huge role in getting the best interest rate on an auto loan. Even more importantly, it can determine whether you get the loan at all. Check your credit score before reaching out to creditors for an auto loan, and if it's not as good as it could be, take steps to improve it. 

You can get help improving your credit score, not to mention getting an auto loan, when you become a member of First Alliance Credit Union.  Our debt payoff kit can help you pay off your balances, and we also offer debt consolidation loans to reduce the number of payments you'll have to make. You can also talk with our lending advisors about getting preapproved for an auto loan to put you in a better bargaining position when you finally visit a dealer's lot. 

Apply for an auto loan today!