According to Experian’s report from the third quarter of 2016, the length and amount of auto loans grew last year (by 4 percent for new cars and 2 percent for used vehicles) and are still growing.
A purchase of either a new or a used car means an expense which, depending on your financial situation, can be a huge or just a standard investment.
The important matter you have to consider in advance is, of course, the loan you will probably try to receive. At the same time, you must check out your credit score which is going to be the factor deciding whether you get the money from the lender or not.
What is more, not only the fact of getting a loan, but also its rate depends on your credit score. This knowledge turns out to be crucial if you need to reduce the overall cost as much as possible. In this article we try to help you gain a deeper insight into the topic.
How does it work?
The score range used by Experian starts at 300 with deep subprime borrowers and ends at 850 with super prime borrowers. In the third quarter of 2016 around 57 percent of loan money went to super prime and prime borrowers (scores of 661 or more).
23 percent was received by subprime and deep subprime borrowers (600 and lower) and the rest went to the nonprime (with the score between 601-660).
Experian’s report shows that subprime and deep subprime borrowers are getting less and less credits from lenders who are more eager to invest in the clients with better financial prospects.
There is another bad information for borrowers with credit scores below 500 – they get five times higher rates than super prime borrowers. Clients with 781 score or higher receive the lowest rates.
How much will you pay?
In the third quarter of 2016 the average monthly payment was 495$ for a new car and 362$ for a used one. As we have already mentioned the amount that you will have to pay back depends on your credit score, thus, the super prime borrowers will pay back less.
What if your score is low?
First, you should get your credit report and analyse it. There can occur some errors so do it carefully. Having analysed your situation, the next task is to work on improving the score. Start with making sure that: your payments are always done on time, your credit balances are low and you do not open more unnecessary credits.
Even if it is possible for you to obtain a loan in a position of a deep subprime, we advise you to wait until your financial situation improves. A much lower interest – and consequently a total price – can be really worth waiting.
When you finally decide to buy
It would be reasonable to consider more than one lender’s offer and find the lowest interest. Even small differences in interests sum up to big numbers. Giving up your time to find the best offer is, actually, really profitable as it can help you save a lot of money.