Car loans are meant to help people get auto financing whenever they need to purchase a car of their choice. Bad credit refers to individuals or people with a not too impressive credit score. For people in this category, it is usually difficult for them to get loans but with bad credit car loans, they have a hope of qualifying for a car loan.
Your Credit Score Plays a Role
Your credit score will play a significant role when you apply for a car loan whether you are planning to buy a used or a new car. Having a good understanding of your credit score will help you to know what type of car loans for bad credit options will be most suitable for you.
What is a Credit Score?
Your credit score is a three-digit number that is assigned to you indicating what your capacity of repaying a loan is to the lender. Your credit score plays a big role in your finances and how you are evaluated by your potential lender, it is your credit score that will portray you whether you are a low or high-risk borrower when you apply for a car loan. How you pay your bills and your debt profile are some of the important factors that affect or influence your credit score. Hence, it is advised that you should know and understand what you need to do in order to establish, build, and maintain a good credit score so that you can be creditworthy.
Your credit score is one part your lender focusses on and most importantly they focus more on your payment history when they are evaluating you to know whether you qualify or whether you will be approved for a bad credit car loan. Those with high credit score stand a better chance of being approved for a car loan and they will also likely get more favorable credit terms as well. They are likely to get a lower interest rate on their account or even lower monthly payment amount for their loan.
Is A Credit Score of 500 Good Enough for Car Loan?
The simple answer to this is a No; A credit score of 500 still falls under the category of bad credit score. However, your credit score should not be the ultimate determinant that will condemn you to not being able to get a car loan or other financial assistance that you may need. You should see your bad credit as an opportunity to get your finances back on track. If you can get an auto loan and you are able to pay your monthly installment as at when it is due it will reflect in your credit report and this will boost your credit score. So see bad credit as an opportunity to better your credit rating. A breakdown of how credit scores are categorized according to Equifax is as follows;
- 300 – 579: This is regarded as poor.
- 580 – 669: Fair
- 670 – 739: Good
- 740 – 799: Very Good
- 800 – 850: Excellent
People with a credit score of 740 and above have the negotiating power to broker more favorable deals when they apply for a car loan.