Photo by CreditDebitPro
How It Affects Your Rate
- The higher your score is, the lower your interest rate will be; this is because your score indicates you are good with debt, so you are less of a risk when it comes to delinquent payments.
- Even if you don’t have an excellent score, you may still be able to get a loan! It just means that you might have a higher interest rate.
How It Affects Your Term
- Lower scores can limit what loan terms you qualify for.
- Those with higher scores have a larger variety of loan terms they can choose from.
Example: 2015 Jeep Grand Cherokee
“2015 Jeep Grand Cherokee – First Drive” by The NRMA is licensed under CC BY 2.0. Cropped and saturated from original.
- 85,000 miles
- 60-month term
- $16,500 used auto loan
Below are examples of five individuals with different credit scores. Notice the difference in the amount of interest paid and their monthly payments even though they all received a loan for the same amount and are paying it over the same period of time:
If I have a lower score, am I stuck with a high interest rate for the life of the loan?
Not necessarily! If you make your payments on time, your credit score will improve. In as little as 6 months, you could refinance the vehicle with your new, improved score, which may qualify you for a lower interest rate. If you keep your monthly payment the same, you could also shorten your loan term and save even more on interest!