So, you’re ready to buy a new vehicle and you even have the car all picked out.  It’s an exciting time, and your credit score is typically not the first thing on your mind when picking out a new set of wheels.  Who could blame you, considering all of the new cars hitting the lots these days?  The reality is that your credit score will likely determine which car you can afford to buy.

Why Is Credit Score Important

Your credit score can be described as your ability to pay back a loan.  Higher credit scores indicate a higher probability that you will pay back the loan and make your payments on time, which indicates to lenders that you are a lower risk than someone with a lower credit score.  There are many different sources for credit reporting information, and lenders in the United States typically rely on information from large credit bureaus such as, Equifax, Experian and TransUnion.

How Does Credit Score Affect Car Loans?

Those with very good credit scores will typically qualify for low interest rate loans and in some cases may qualify for 0% financing.  Those with lower credit scores will be faced with higher interest rates.  Your credit score may also affect your down payment amount.  Those with lower credit scores will generally be required to put a larger amount down on the vehicle in addition to paying a higher interest rate on the loan.  The low score represents a high risk to the lender, and as such, the lender wants to recover a large amount in a short period of time.

What are the Options for Folks with Bad Credit?

Though everyone wants a perfect credit score, most folks simply don’t have it, and that’s ok.  Simply because you aren’t perfect doesn’t mean that you can’t secure financing.  Subprime lenders and dealerships that cater to the low credit / no credit customer may seem like your only option if you have a low credit score, but don’t take their word for it.  They may be offering loans at nearly 20 percent interest.

Just because you have a low credit score, doesn’t mean you can’t shop for the best deal.  Ronald Montoya at Edmunds.com recommends going to your own bank or credit union where you have established accounts.  These institutions have a financial relationship with you, and may be more likely to approve your loan.  You may seem like a lower risk to them, and this could be reflected in the interest rate.  This could be the key to securing financing at a much better rate than you would have received elsewhere.

Other Auto Loan Options for Bad Credit

Researching lenders online is another option. Most of the major banks provide car loan calculators, and even allow you to apply for the loans online.  It is important to remember that you can still shop around.  If you are looking for more advice, Bankrate.com does a good job illustrating 9 steps that you can take to secure financing with a low credit score.

Finally, don’t worry about multiple credit inquiries affecting your credit score.  You generally have about 14 days to make multiple inquiries and have them count as one credit inquiry.  This should allow you to comparison shop before making a decision and getting your car loan.