Effect of Credit Score on Financing and Lease Rates
Unless you’re paying for your vehicle up front in full, your credit score will probably impact its cost. The inhabitants of Maryland’s Eastern Shore are not free from the effects of the seemingly all-pervading judgment of FICO, and we at Pohanka Toyota do propagate its usage. How does one’s credit score affect the price of their car?
The biggest impact that credit score has on the cost of a vehicle is through interest rates. If you have a lower (or non-existent) credit score, you’ll likely be able to find a lender, but you won’t qualify for loans with low interest rates. Whether you finance or lease, you’ll be paying more in interest each month if you have a low credit score.
Generally, credit unions and banks used a tiered system to evaluate credit score. The lower the tier one falls into, the higher the interest rate they will be charged. Good credit scores are more likely to get the best rates, although other factors, such as income, are also taken into account.
Individuals with low credit scores are also more likely to be asked to pay a bigger down payment in order to reduce the amount that they will have to finance.
Find out what rates you qualify for at our dealership by pre-applying for financing.
Why do people with high credit scores get charged lower interest, and vice-versa?
Financing institutions see those with a higher credit scores as being a lower risk. This affects whether you get approved for a lease or financing, in addition to the interest rate you get saddled with. Higher credit scores qualify for lower interest rates and thus lower monthly payments. Other factors do play a role in approval as well, such as having a stable income and having a low debt-to-income ratio.
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Will having no credit affect my financing or lease rates?
Similar stipulations apply for those with no credit as for those with low credit. Those getting a loan when they have no credit basically have to bite the bullet and pay the higher interest rate until they’re able to build up good credit by making timely payments.
See how much interest rates affect your payments over time by using our handy payment calculator tool.