Getting financing for a car? It’s time to think about your credit score
Your credit score can make a big difference when it comes to obtaining financing for a car. But lenders don’t just look at your credit report to assess whether or not to lend you. Your credit score will also determine the type of interest rate you can get.
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New research from Uswitch.com has revealed that on some cars this difference could cost you up to Â£ 35,000! We will take a look.
What does a bad credit score mean to get financing on a car?
A bad credit rating can impact many areas of your life, including auto financing.
Uswitch’s study looked at the cost of buying some of the UK’s most popular cars on finance for different levels of credit score.
So, for example, if you wanted to buy a Ford Fiesta, the base model would cost you Â£ 16,645. Buying on finance with a four year payback period and excellent credit rating would result in a total cost of Â£ 20,014. However, the cost would increase to Â£ 27,073 if you had a bad credit rating. That’s a difference of over Â£ 7,000.
Of course, the difference is even greater when you look at more expensive models. A Range Rover Discovery would cost someone with an excellent credit rating of Â£ 100,680 over four years. This climbs to Â£ 136,189 for a driver with a bad credit score. That’s a difference of Â£ 35,509.
How can I improve my credit rating?
If you are in a situation where your credit score is less than net and you are looking to take out financing for a car, then there are a few simple things you can do to improve your score.
- Register to vote – Being on the voters list with your current address can make a big difference in your credit score. This means that lenders can easily verify that you are who you say you are.
- Consider your use of credit – Lenders examine your use of credit. This is the credit available on your credit cards. The general rule of thumb is that if you keep your balance below 30% of available credit, it won’t hurt your credit score. If this exceeds 50% to 70%, “orange flags” will begin to appear on your credit report.
- Make your payments – The best thing you can do for your credit score is make sure you pay all of your bills on time. Lenders look for responsible borrowing behavior. So if you can show months of regular payments, you are putting yourself in a strong position.
- Check your credit report for errors – How many of us have actually looked at our credit reports? Before you can start improving your credit score, you need to know what’s in your report. If you check your report and there is an error, you can notify the credit reference agency and ask them to make a correction.
Where can I look for auto finance offers?
As with any type of financial product, it’s best to shop around and try to find the best rate for you. If you’ve put yourself in a strong position with your credit score, chances are you’ll be able to access more competitive offers.
If you know the make and model of the car you want to buy, using a comparison site can also help you look at the packages side by side.
The only thing to keep in mind is that while a car dealership will have their own offer, it might not be the cheapest. So try not to forget to look at the total cost of the finance package. Also consider restrictions such as your annual mileage cap.
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