One of the reasons why people have to get bad credit car loans is because they have a bad credit score. ”Credit score” can be used to talk about a few different scores kept in your credit file, but the one that is most important when it comes to lenders is your FICO score. Knowing and understanding this score will help you when it comes to getting a car loan.
Credit scores range from 300-850. They are calculated using a complex system and are based on your credit history. Anything good in your history raises the score, while anything bad lowers it. Good things include paying on time and making good use of your available credit. Bad things include missed payments, going over your credit limits and accounts in collections.
When it comes to auto loans, a FICO score of 540 or less will usually put you out of the running for a traditional loan. You’re only option will be bad credit car loans. This is just a general rule of thumb. Some lenders have a higher minimum. However, it’s pretty standard that interest rates will be higher as the credit score gets lower.
Having a low score also means higher monthly payments and shorter loan times. Lenders charge more for a bad credit loan because the risk is higher. If you have a low score, it means you haven’t made payments on time or met your financial obligations like you should have. This tells the lender that you’ll likely default on this loan, too, so they do everything they can to minimize their risk, such as charging higher interest and having you pay off the loan more quickly.
Understanding the impact of your score before you get a car loan will help you to know what to expect. It’ll give you insight into how much negotiation room you have and let you know what type of loan you’ll likely qualify for.