How Much Does Your Credit Affect What You Pay For A New Car

Alright, money enthusiasts, pop quiz time. Let’s see a show of hands how many of you know that your credit score can actually impact the overall price you pay for a new car? It’s true! A low credit score can actually make a new car more expensive for you than it would be for someone with better credit.

Here’s why: when you have a lower credit score, lenders try to balance out the risk of giving you financing with a high-interest rate. The lower your credit score is, the higher an interest rate you’ll be offered. Interest adds up over time and in some cases, you could be paying thousands more for a car over the length of your financing.

So, how do we avoid high-interest rates on our car loans? By boosting our credit as fast as we can before we go get an auto loan. Here are three ways to get some extra points on your credit score fairly steadily:

1. Get a secured card

You will need the funds up front to secure this card, but once you’ve got it and you’re using it, you just need to make sure you’re paying it off in full on time each month. Once you do this, your credit will start to grow.

2. Get a secured line of credit

Very much like a secured card, a secured line of credit can be great for your credit. You just need to ensure you're paying off as much as you can each month on time and keeping all your other debts in good standing. A line of credit will usually have a much lower interest rate than a credit card, too.

3. Sign up for a credit building program

Unlike a secured card or a secured line of credit, you won’t need money up front to secure this program, as the principal acts as the security funds. Once you’ve paid off your program, the principal will be available to you - money you can then use as a down payment on your new vehicle. If you can't wait that long, you can even start to withdraw savings once you've paid off your commitment fee! Find out more about Refresh's credit building program.

It’s important to note that if you have poor credit and applying for car loans at multiple places and keep getting denial after denial, you could end up lowering your score. Multiple credit checks from multiple places in a short period of time is one of the many things that can bring a credit score down. It’s far better to work on bringing your score up before you try to apply for auto financing. Work towards paying down your debts, get yourself a mix of the three options above, and your credit score will go up in no time. Then, go pick out your car and get a great deal!

If you're struggling with building your credit score, Refresh Financial can help! We have programs to suit all lifestyles and budgets. Check it out!