When it comes to making a vehicle purchase, your credit score is a pretty important number. That is unless you're paying for the vehicle in full at the time of purchase. But, since the majority of vehicles are bought through financing, most buyers will use their credit score to secure their finance agreement.
Before we talk about building your credit score, here's a little background on how this number affects finance agreements.
Credit Scores and Finance Agreements
Financing your car purchase means you're taking out an auto loan and agreeing to pay back your lender over a predetermined amount of time, at a predetermined rate. Typically, vehicle buyers secure an auto loan through a bank or a lender, and both banks and lenders consider your credit score when they decide whether or not to lend the money and how much risk is associated with doing so.
A low or poor credit score makes you appear like a higher risk, and a high or good credit score makes you appear like less of a risk. So, a good credit score can increase the number of lenders willing to work with you to finance a vehicle purchase. And, you're more likely to secure a lower interest rate.
Build Your Credit Score with a Finance Agreement
If you do have a low credit score and you need to make a vehicle purchase, all is not lost. Even though you may end up paying a higher interest rate, making on-time payments is a great way to build up your credit score. A finance agreement for a vehicle purchase lasts a number of years, and all of the regular payments you make during that time definitely pay off in the long run.
Even if you have a low credit score now, a finance agreement gives you the opportunity to make regular payments and demonstrate that you are a lower risk to lend to. As a result, the next time you go to a dealership to finance a vehicle, you will most likely secure a lower interest rate.
Protect Your Credit Score When Financing
It's important to note that while a finance agreement is a great way to build up your credit score, not following through with the terms of your agreement can have a negative impact on your credit score. Missing or making late payments is something you want to avoid, especially if you're working to build your credit. Because of this, be sure the monthly payment worked out in your finance agreement fits within your budget.