Car Loans Tied to FICO Score
Car Loans tied to Credit Score
Car loans are a recurring monthly headache for tens of millions of people. In an attempt to simplify the situation for many people let’s review this matter with a brief tutorial and a down to earth chart showing how car loans tied to credit score. Before we go further you should bear in mind that it is much to your advantage if the lender reports your loans payments to all 3 major credit reporting agencies. This gives you credit for an installment loan which adds to your mix of different types of credit. This mix of credit accounts for 10 percent of your FICO credit score.
Car Loans Tied to Credit Score Known as “Auto Enhanced”
Auto dealers pull up a FICO score to determine your eligibility for a loan and the rate you will pay if you are eligible at all. This FICO score is referred to as your “Auto Enhanced” or “Industry Option” FICO score. This is a custom formula. For the most part it will closely resemble your classic FICO score, but it emphasizes certain things. In particular it heavily weighs whether or not you have ever had a repossession, whether you are chronically late with your car payments, whether you have had an auto account referred to collections and whether a car loan or lease has ever been included in a bankruptcy. Whether or not you have a good payment history on an installment loan of some type is a huge factor.
Thinking Ahead is Never a Bad Idea
I recommend that you call the dealer ahead to see what their requirements are to avoid denting your score with an unnecessary hard credit pull. You can get your own score at myfico.com without denting your score. Of course this will not be the auto enhanced score. The auto enhance score is proprietary. This means that an auto enhanced score is only available to those in the car selling business. Your classic FICO score will be close enough for you to see whether or not you are in the credit score ball park.
Getting Interested in Interest
If you are just going to depend on the dealer’s financing arm, find out whether the loan is calculated as simple or add on interest. With simple interest the interest is calculated on the loan balance which is reduced with each payment. Add-on interest is a sneaky system that calculates the interest on the original amount of the loan for the life of the loan and therefore is much more costly.
OK let’s get real. The following chart is for a loan of $10,000.00, a term of 60 months, with interest computed at the national average.
FICO INTEREST PAYMENT
- 720-850 3.865% $295
- 690-719 5.270 301
- 660-689 7.401 311
- 620-659 11.067 328
- 590-619 16.087 352
- 500-589 17.239 358
Some Final Thoughts
The worst breaks come when you score below 660 and in particular when you score below 620. The best quick fix is to pay down your credit card debt to increase your debt to available credit ratio. Car loans tied to FICO score can be made more attractive this way. Work on improving your score by ordering and reading my book and keeping up with my blog.
The difference between the high and the low = a total of $21,480.00 vs. $17,700.00 for a total savings of $3,780.00!