Can You Finance Your Car With Bad Credit?

April 29th, 2022 by

Buyers with less than perfect credit can still drive off in their dream vehicle. However, regardless of what your credit score is, you should know how your credit score affects the transaction before you begin. The major credit reporting agencies measure your income, debt, and available credit to assign you a credit score. Your credit score represents your creditworthiness and assesses your ability to make payments on time and in full.

A low credit score doesn’t prevent you from getting an auto loan. However, it does affect the interest rate you qualify for, as well as the amount you can borrow. A higher credit score will get you lower interest rates and better loan amounts. Lending institutions check your score to determine the level of risk they’re taking before approving a loan, yet there are no clear standards in the industry. Instead, each lender follows its own rules before approving. Here’s how your credit score affects your approval odds and what you might do to maximize your credit.

Credit Scores and Auto Loans

Different Types of Credit

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Credit card companies and mortgage lenders use the Experian, Trans Union, and Equifax credit bureaus to measure your creditworthiness. These institutions score people between 300 and 850 points. However, most car loan originators use the FICO Auto Score instead. FICO scores range from 250 up to 900 points. So what’s the difference?

Banks specializing in auto loans want to see a history of responsible debt management. These lenders look at debt-to-income ratios, how much available credit you have versus what you use, and payment history to determine your loan amount and interest rate. 

As your FICO score drops, your interest rate will rise. Buyers with an Excellent FICO score of between 800 and 900 points can expect to get an interFest rate as low as 2.5%. Unfortunately, only 21% of all consumers have an excellent FICO score. If your score falls between 740 and 799, you’re classified as having a Very Good rating. You likely will qualify for a decent interest rate that falls between 4.0%–5.0%. 25% of consumers fall within this category.

You have a Good rating if your score lands between 670 and 739 points. Depending on the lender, you can expect to find interest rates between 5%–7%. Buyers with a score between 580–669 points fall within the Fair credit category. Depending on your particular financial situation, you will find interest rates anywhere from 7% up to 11%. If you score below 580, you have a Poor credit rating. While a Poor rating won’t prevent you from getting a car loan, it does mean you could end up with an interest rate as high as 15% or more.

How To Raise Your Credit Score

Fortunately, you have steps you can take to raise your credit score, some of which can happen quickly. We recommend you get a copy of your full credit report and analyze it closely. Late payments have the most effect on your score and can remain on your report for up to seven years. If you have a good payment history over many years with a lender, but have a late payment on record, contacting the lender and requesting they remove the late payment isn’t out of the ordinary. Many creditors will remove them, but you have to ask.

Sometimes, borrowers have late payments because of medical conditions or a temporary loss of employment. Lenders consider these factors and often remove the negative marks if your account remains in good standing. Getting these late payments removed from your credit report can significantly improve your score.

Your credit utilization affects your credit score, yet many people don’t understand how this works. You always want to keep in mind the amount you owe versus the amount of credit you have remaining on your credit cards. For example, if you have a $2,000 credit limit on one card and owe $1,000, you have a 50% credit utilization rate. Most financial experts suggest keeping your utilization rate beneath 30% and believe 20% to be the optimal amount.

So, if you paid $500, your utilization rate drops to 25% and your credit score rises. In some cases, you can achieve the same results without paying anything. Instead, you can request a credit limit increase. 

Paying utility bills on time can also help improve your credit score. Experian Boost is one method you can use, which factors in your rent payments, gas or electricity bills, and even your cell phone bills to raise your credit score.

Get Auto Financing With Bad Credit Today

We hope you learned more about how credit scores impact auto financing. At Miami Car Credit, we don’t believe a bad credit rating should keep you from achieving your dream of owning a vehicle. In fact, we have a team of finance managers with the expertise you need to find loans that fit any financial situation.

If you’re curious whether you qualify for a loan, you can take advantage of our streamlined process that begins with an online pre-approval application. In minutes, you’ll know if you qualify, how much money you can borrow, your interest rate, and even your monthly payment.

Then, when you’re ready to begin shopping, you can visit our dealership T 19390 NW 2nd Avenue, Miami Gardens, Florida with your budget in hand. One of our friendly, knowledgeable staff will ask you a few simple questions to determine your needs and show you those vehicles that fit your criteria. You’ll find competitive rates and terms, and our team will treat you with the respect and courtesy you deserve.

Less than perfect credit shouldn’t stop you from purchasing a car. If you take our advice and follow the simple steps above, you can qualify for a car loan with a lot less hassle than you might imagine. Miami Car Credit has built our stellar reputation by providing quality vehicles and excellent service to customers throughout Dade County. If you’re ready to discover the Miami Car Credit difference, we invite you to browse our inventory online or stop by our dealership.

Posted in Auto Finances