Determining how to avoid a high interest rate on your next car loan can be like putting a jigsaw puzzle together without the picture on the top of the box. Fortunately there are several things that can help. This article will help you understand how down payment and your credit score will effect the ultimate interest rate you will be paying on that next car loan.
Down payment is always king in the lenders mind and the bigger it is usually the lower the amount of interest you will be forced to pay on the loan. Down payments allows the lender to be in a better equity position on the loan and therefore is not as much at risk. This allows them to pass that “risk savings” on to you in the form of a lower rate of interest.
Within your complicated world of credit scores there is one undeniable fact that basically everyone assumes is true: late payments are bad on your credit scores. Not only are late payments bad, but also they are assumed to be one of the worst things you could do to your scores. The first sign of the late payment on your credit reports signals impending credit doom, right? It seems that this is not the case after all.
Credit scoring systems are so focused on predicting whether you will go a 90 days late over the life of the loan, surprisingly, an old 30 or 60 day late payment is generally not that damaging for a credit scores provided it is definitely an isolated incident. Only when your accounts are currently being reported 30 or 60 days past due on your credit reports, will your credit scores drop temporarily. Here is a summary of how a delinquent account effects your credit:
* 30 days delinquent- This record will damage your credit scores only when it is reported as “currently 30 days late.” The exception is for anyone who is 30 days late often. In other words, a 30-day late payment will not cause lasting damage.
* 60 days delinquent- This record will also damage your credit scores when it is reported as “currently 60 days late.” Again, the exception is when you are 60 days late often. Otherwise, it will not cause long term damage.
* 90 days delinquent- This record will damage your credit scores significantly for up to 7 years. It does not create a difference whether or not your account is currently 90 days late. Remember, the goal of the scoring model is to predict whether or not you will pay 90 days late or later on any credit obligation in the future. By showing you have already done so means you are more likely to do it again compared to someone who has never been 90 days late. Because of this, your credit scores will drop.
* 120 days or more delinquent – Late payment reporting beyond the initial 90 day missed payment does not cause additional credit score damage directly. However, you can find an indirect impact to your scores. At this point, your debt can be “charged off” and typically sent out to a 3rd party collection agency for payment. Both of those occurrences are reported on your credit files all of which will decrease your credit scores further.
Now that you just understand how your credit effects you both within a short and long-term, do not forget to make those payments on time. This not only effects the amount of down payment you are required to put down but has long lasting ramifications to your pocket book. You can always find more details about your credit and obtaining your next car loan online at OpenRoad Lending.