How can your credit score affect your car loan payments?
Understanding how a loan works can be complicated. There is a lot of math involved and understanding how the qualification process occurs can be even more complicated. However, what about your credit score? How can your credit score affect your car loan payments? At U.S. Auto Sales we have a lot of experience in this field, and we can answer that question and more. While you are here you can get pre-qualified for a loan, reach out to us, or even check out our inventory by following the links below.
Does your interest rate affect your car loan payments?
There are three vital numbers that dictate what your loan payment will be. Though your credit score isn’t one of them, it will play a role, and we will get to that in a moment. The three numbers that affect your payment are your term length, your loan amount, and your interest rate.
The loan amount is likely an obvious factor, but that and the term length go hand in hand. For example, it is possible to pay more in monthly payments for a more affordable car if you are only making 36 payments over 3 years on the more affordable car as compared to a loan that is 60 payments over 5 years.
Read More: Tips for Getting a Car Loan with No Credit
The term length divides up the loan amount to dictate those payments, but the interest rate plays a major role as well. Interest is how the lender makes money off the loan. As a loan remains outstanding, its remaining balance will accrue interest. This means that though you may have taken out a $10,000 loan, you will pay your lender more than that over the course of the loan, and that will be reflected in your payments. On two loans for the same amount and the same terms, the higher interest loan will have the higher payments.
Does your credit score affect your interest rate?
Interest rate is where your credit score comes into play. A lower credit score will typically mean a higher rate which will equate to a higher payment. Luckily, making those payments should increase your credit score and allow you to get better rates on future loans.