How Does Your Credit Score Impact Your APR?
Your credit score significantly affects your ability to finance major purchases. The credit scoring system is attended to assign risk to borrowers and predict their ability to pay their debts. In general, the more credit that you have, like loans or a credit card debt, the lower your credit score will be – at least if you have a history of not paying it back. On the other hand, having debt and making payments on time can help improve your credit score.
Credit scores are a complex topic, and a bad one can prevent or complicate the process of buying things like homes, renting apartments or even buying a car. You can purchase a vehicle with a low credit score, but the annual percentage rate (APR) of the loan you get might be high.
APR is the yearly interest you will be accruing on the money you borrow. You can determine your monthly interest rate by dividing your APR by 12. As a rule of thumb, bad credit scores mean higher APRs, while good credit scores result in lower APRs.
Credit scores vary greatly among individuals depending on their debt history. Even if you have never had a credit card or taken a loan out, your credit score might be low because the system has no way to judge your financial trustworthiness. That is why some experts recommend young people get credit cards to build their credit score.
As you make those monthly payments and pay something off a loan, the actual dollar amount you’ll accrue will go down since the accrual rate is just a percentage of the principal – or what’s still left outstanding on your loan.
APRs also differ based on the type of purchase. For example, a home mortgage or credit card may have a very different APR for you than your vehicle loan.
The APR that you want to avoid the most is a penalty APR, which is a special even higher interest rate that is triggered by being late on payments. Penalty APRs are most commonly associated with credit cards, and they’re one of the reasons why it’s so important to avoid carrying a month-to-month balance on your credit cards. Triggering penalty APRs will lower your credit score.
Auto Loan APRs
There are really three important loan-related numbers that are relevant to car buyers who want to finance their purchase:
- Credit score
- Your pre-qualified or pre-approval loan amount
Your credit score will determine how much money you are eligible to borrow to finance a car purchase and the APR you’ll be charged on that loan.
A credit score should not keep you from getting a vehicle, at least not at every dealership. Our slogan at Easterns Automotive is “Your Job Is Your Credit®”. Even if your credit score is less than perfect, we can work with you to find a financing solution.
We sell cars to people with high and low credit scores and work with more than 30 lenders to find an auto loan option that meets each customer’s financial needs.
It’s worth noting that the best way to improve your credit score is to get financing, make your monthly payments on time and eventually paying off your loan. We truly believe our efforts to find auto loan solutions to every person, regardless of their credit, is a public service to customers with less than perfect credit. We want to be part of your credit healing journey.
Get a Great Pre-Owned Vehicle with the Best APR Possible in Baltimore and the DMV
By working with more than 30 lenders, we’re able to shop each used car customer around to find a lender that’s willing to offer them the money they need at the best APR possible.
We also offer a simple and secure two-step credit form that helps ensure you go into your financing search with the knowledge you need to make an informed decision.
Credit scores are a fact of life, but a high APR isn’t an inevitable part of the car buying process. Contact us at (888) 650-4775 or visit one of our many locations in the Biltmore and Washington, DC area to learn more about vehicle loans that works for your finances.