If you want to qualify for better interest rates on your next auto loan, improving your credit score is a good way to start. Credit improvement doesn’t have to be stressful; there are many ways to increase your credit score with a few simple changes.
4 Easy Tips for Better Credit
When you have bad credit and need a vehicle, it can seem like there’s no light at the end of the tunnel. But in truth, there are lenders that specifically cater to bad credit borrowers.
Bad credit car loans come with a few catches, however, such as higher interest rates and stricter qualification conditions. Even though you can’t get around the requirements you have to meet for an approval, you can combat the higher interest rates by improving your credit score before you apply.
If your need for a car isn’t immediate, it can pay off to take the time to work on credit repair before the need for a vehicle becomes too great. Here are four easy ways that you can help improve your credit score:
- Pay your bills on time – Improving your credit score can be as easy as making sure you pay all of your bills on time. This helps you build a solid payment history on your credit reports, which accounts for 35% of your FICO credit score.
- Clean up your credit reports – Another simple fix is to clean up any mistakes that may be lingering on your credit reports. If you’re not sure what they may be showing, you can request a copy of your reports for free by visiting www.annualcreditreport.com.
- Use your credit wisely – The amount you owe on your credit cards compared to the amount of your credit card limits is known as your credit utilization ratio. This is a big factor that helps determine your credit score. You can ensure that yours stays low by paying off your credit cards each month, or keeping them as low as you can. One way to do this is to make small payments throughout the month to keep your balance low. It’s also good to have a balanced mix of credit cards and installment loans, and to only open a new line of credit when you absolutely need to.
- Get a boost from your utilities – There are many programs available today that can help your credit by making the most of the bills you already pay. One program, Experian Boost, allows you to use your existing utility bill payments to improve your credit score. It reports them to the credit bureaus just as if they were payments on credit accounts, which can give your rating a boost.
Why a Better Credit Score Helps Your Interest Rate
Improving your credit score helps you qualify for a better interest rate because the biggest factor that impacts your APR is your credit rating. The better your credit, the lower the interest rate you’re likely to qualify for.
However, interest rates are based on a few other factors as well, such as the federal prime rate, where you live, and the lender you’re working with when you apply for financing.
When you have bad credit, you don’t qualify for the lowest interest rates. This leads to increased interest charges, and a higher overall cost. Since a higher credit score could mean a lower interest rate, a better credit score can help you save money.
The overall cost of your auto loan is impacted by the interest rate, because interest accrues daily based on the loan balance. So, the lower your interest rate is, the more money you’re going to save over the course of the loan.
Save Money on Your Auto Loan
Because credit improvement takes time, you sometimes can’t wait until your credit score increases before getting a car loan. In this case, there are some things you can do to help save money on your next auto loan while working to repair your credit in order to qualify for better interest rates.
Try these tips to save money on your next car loan when you have bad credit:
- Pick an affordable vehicle – When you’re dealing with bad credit, it’s not the time to finance your dream car. By choosing to finance a vehicle you can comfortably afford, you can offset some of the increased costs associated with a higher interest rate. By choosing an affordable, reliable car now, you have the opportunity to use this loan to help improve your credit, too. Then, next time around, if you find yourself in a better credit position, you can shop for the vehicle you want, rather than the one you need.
- Shorten your loan term – If you have to stretch your loan term to 72, 84, or even 96 months just to afford your monthly payment, then you should think twice about a loan. The longer your loan term, the more you’re going to pay in interest charges. You can save money on your loan by choosing the shortest loan term you can afford – just make sure the monthly payments are still within your budget.
- Down payments make a difference – When you make a down payment on an auto loan, you decrease the overall cost. It’s a common practice for lenders to require down payments from bad credit borrowers. The larger the down payment you can make, the less money you have to finance, which means there’s less of a loan balance for interest charges to accrue on.
- Pay off your loan more quickly – Because interest accrues on a daily basis, the less you owe overall, the better. One way to use this to your advantage is to pay off your car loan more quickly. There are several ways you can accomplish this, such as payment splitting, bi-weekly payments, or just paying more than the minimum whenever possible.
Get the Car Loan You Need
Whether you improve your credit score beforehand or not, there are lenders available that can work with people who have poor credit. These lenders, called subprime lenders, work through special finance dealerships, but not all dealers are signed up with them. This is why it’s important to know where to go when you need to get a subprime auto loan.
Without knowing which dealerships have a relationship with subprime lenders, you could waste precious time, energy, and money driving from dealer to dealer just to be turned down. Fortunately, Auto Credit Express has the inside scoop on where to go.
To get connected to a local special finance dealership, just fill out our secure car loan request form. After you do, we'll work to get you matched with a dealer near you.