About Car Loans and Credit Scores


When you are looking for a new vehicle, whether it truly is brand new or it is a pre-owned vehicle, often requires you to find financing.  Most car shoppers aren’t able to foot the bill in cash; so learning some of the basics of car loans is an important way to help yourself get the best deal you possibly can.


By using a loan on your vehicle, you are borrowing money from a lender with the agreement that you will pay it back over time, including the accrued interest.  The term of the loan is the length of time you have to pay that loan back.  Many car buyers sign up for terms around five years, meaning they agree to pay a specific amount each month to their lender and by the end of their five year term, they own the vehicle, free and clear.  Because most car buyers don’t have the kind of money to be able to pay for their vehicle up front, car loans are a practical way to purchase a car with an affordable monthly payment.  Think of it this way, your lender is buying your car for you and allowing you to use it.  You agree to be responsible for it, but until you have paid your last loan installment, it’s not truly yours yet. Defaulting, or not paying for your monthly loan payments, will force the lender to repossess the car.


Because interest must be paid back on car loans, you’ll want to get the lowest interest rate you possibly can.  Credit scores largely determine interest rates.  Your credit score is an indication many companies use to determine how likely you are to paying your loan back.  It is a number assigned based on how much debt you have compared to your income, how often you pay your bills on time, how long you have used credit, and several other factors.  The better your credit score, the better the interest rate you can find for your car loan.


Car loans don’t have to be scary.  In fact, if you do everything you can to be a responsible bill payer and you shop around, you can find a vehicle loan that work best for your budget and needs, and one that has a lower interest rate.

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