If you are looking for a new car or truck, you are probably happy to choose the model, paint and all the accessories that come with the vehicle. Just as important – if not more – than all the interesting details and additions, however, is your ability to finance the vehicle.
Most people choose to buy a new car or truck through finance, which is the payment of a vehicle in installments. Financially, this is a much more manageable method of vehicle ownership than paying for a vehicle in a giant lump sum of several thousand dollars.
You can get an auto or truck loan directly from your dealership of choice; through a bank or an individual. Each payment method has inherent risks and rewards (for example, bank loan rates may be higher – but you might not have legal recourse if something goes wrong with a private or family loan). Before choosing a type of loan, these risks and rewards should be carefully weighed.
For many Americans, however, the biggest risk factor when purchasing a new vehicle is whether or not they will qualify for the loan in the first place. An individual’s credit score determines their creditworthiness – this number will tell the lending institution whether or not that person will reliably make payments for a car or truck. The lower your credit score, the lower your chances of getting a loan at an affordable rate. In fact, some people with particularly bad credit scores may find it difficult to get a loan in the first place.
What is a credit score and how does it affect your ability to get a new loan for a car or truck?
Kenneth Elliot wrote in the March 21, 2008 edition of the American Chronicle, “…[T]The FICO score remains a primary tool for lenders. It might not determine the final decision, but it definitely influences the “first cut” when presented with a stack of applications to approve or disapprove. “
FICO is the name of the consulting firm that developed standards for calculating credit score, Fair Isaac Corporation. The FICO scoring rubric is the most common method used to determine an individual’s creditworthiness. In the United States, credit bureaus or credit reporters analyze an individual’s financial past – debts, loans, utility bill payments, past car loans or mortgages, and more. – to determine if it represents a good loan risk. A FICO score ranges from 300 to 850. 850 is the highest possible credit score; people with high scores have little or no difficulty in obtaining loans. Conversely, credit scores near the lower end of the FICO rating range indicate people who are high risk borrowers; these people generally have extreme difficulty managing their debts.
CNN Money reports that the average American has over $ 9,000 in credit card debt. Late or missed credit card payments are one of the main factors that lower individual credit scores. Many people spend more money than they actually earn and are drawn to the lure of shopping on credit, which seems like easy money at first. People with a high debt-to-income ratio might not be able to afford monthly credit card payments. After a few months of missed or late payments, a person may find that their credit score is surprisingly low.
The FICO credit score is determined by a sum of factors. Each factor in a person’s credit history is given a different weight in the final assessment of their financial situation. When determining a credit score, the greatest weight is given to the individual’s debt and bill payment history (is it timely or perpetually late?) And the total amount of debt. he wears. The length of an individual’s credit history is less important – but still contributes to the final credit score; the types of debt he has and how often he has applied for new credit. People who make timely bill payments, have long credit histories, and have demonstrated convincing abilities to manage their debts often have the best credit scores.
Before being eligible for a car or truck loan, you will be asked to provide the lending institution of your choice – whether it is the car dealership, the bank or an individual – information about yourself. . The information required may include full contact information; a social security number; details about your mortgage or apartment lease and employment records. The lending institution will forward your information to one of three credit bureaus – Equifax, Experian, or TransUnion. The credit reporting agency uses the FICO algorithm to determine your credit score.
If your credit score is less than stellar, don’t despair. You may still be able to finance a new vehicle. Remember: you always have two options when it comes to pitting a bad credit against the stringent terms of a car or truck loan. You can work to improve this score or find lenders who are willing to work with you. However, if your credit score is good, then you are a preferred borrower and you will likely be able to get loans at attractive (i.e. low) interest rates. Go ahead and get that new car or truck loan!