Credit tiers are a major factor considered before lenders give out auto loans. A credit tier of 726 authorizes you for an auto loan, but there are other factors. Your creditworthiness and your chances of paying back are also given due consideration.
Definition of Credit Tiers and How it Affects payment
There is no specific good credit score for an auto loan because it relies on different factors. This is because your credit history enhances your likelihood of having your loan request approved.
Find in this article every detail about credit scores, how they affect your car loans, the required score to get approval, and other considerations you should have in mind before your application.
Credit Score Requirements for an Auto Loan
The primary knowledge you need to have about credit scores as regards auto loans is that auto lenders make use of various private models to score applications. Any of the following can be used as a scoring model:
FICO 8 and 9: These current editions of FICO’s basic score give a complete overview of how creditworthy you are. Your credit card monitoring service or credit card issuer will give you access to one of these scores. FICO Auto Scores: There are auto industry-specific scoring models that FICO gives, providing lenders with information about your chances of paying back an auto loan early. Should this score be used by a lender in the course of writing an agreement, it will be hard getting approval due to previous payment problems you must have had with auto loans. VantageScore 3. 0 or 4. 0: The two models have minor differences from that of FICO but still make use of your credit report to determine how creditworthy you are.
The sad news is that you have no control over the credit score being used by lenders in the evaluation of your application. Your base FICO score can however be used as a good indicator of your approval chances.
Credit Tiers of FICO Scores
The FICO score is broken down into five tiers with ranges from 300-850:
Exceptional: 800 – 850Very good: 740 – 799Good: 670 – 739Fair: 580 – 669Poor: 300 – 579
Having good to exceptional credit puts you at a higher chance of securing approval from many auto lenders. You may still stand a qualification chance for a loan with fair or poor credit, but your lender options may be limited and you may have to deal with certain accompanying restrictions.
How Credit Scores Affect Your Car Loan
Your credit score happens to be the best method of estimating your debt repayment ability. How your credit score affects your auto loan differs depending on your choice of a lender and their scoring model (s) for evaluating your credit worthiness. In summary, your chances of scoring a low-interest rate with restrictive loan terms increases as your credit score increases.
For instance, having a good credit score can help you finance $30,000 over 60 months for a new vehicle with a 3.99% APR. Taking this into consideration, you would need a monthly payment of $552 and pay an interest of $3,120 over the loan duration.
But having a poor credit with an APR of 15.99% on that amount would increase your monthly payment to $729 requiring a 60-month term interest payment of $13,740.
This simply explains the possibility of acquiring an auto loan irrespective of your credit situation, but it could cost you a whole lot of money. This is not so enticing if you do not need a new car.
Lenders will also put into consideration your credit report, your monthly debt payments relative to your gross monthly income, your debt-to-income ratio (DTI), and your employment history, among other factors. Your financial profile can better your chances as credit Score is not the only criterion considered by lenders.
Things to Assess before seeking an Auto Loan
Before you begin the process of applying for an auto loan for your new car, contemplate these things.
Evaluate Your Chances Using Your Credit Score
Your credit score will provide you with an insight into your odds of being approved by certain lenders as well as the loan terms and costs to expect. Improve your credit score if it’s in bad shape so you can have a better chance. Improve your credit score with the following:
You can inspect your credit reports for possible errors and call the credit reporting agencies’ attention to them. Address problems like late payments, high credit card balances, and collection accounts. Pay all your debts early. Maintain a low credit card balance relative to credit limits. Try to avoid unnecessary borrowing of money.
Make Proper Research on Lenders
Since different lenders have different eligibility criteria for car loans, you may want to move around to save as few bucks on your auto loan by comparing multiple lenders. This will offer you a chance to compare and pick your best fit.
Have a Good Down Payment or Trade-In
Personal savings for a down payment can make things easy for you. It will be a good thing you start saving soon, as it will help lower the amount you borrow and the interest rate since your lender is taking a lesser risk on a smaller loan.
Exercise Good Credit Behavior for Best Outcomes
Enhancing your credit can enable you to qualify for an improved auto loan. You may contemplate this option if you are not in urgent need of a car loan because the process takes time. Building good credit behavior helps you escape a high-interest loan.
Conclusion
Securing a car loan is not as difficult as most people presume. A credit score of 726 can easily secure you a loan for your new car. Researching the lenders, having a good down payment, and exercising good credit behavior are considerations to make when looking for an auto loan
What is the best credit score?
The favorable credit score for an auto loan is 661 or more.
What is the credit score needed for Tier 1?
- Credit standards only consider a credit score of 700 to be in tier 1.
Does a credit score of 726 qualify me for an auto loan?
Yes. You can handily get your car loan with a score of 726.
