According to the National Automobile Dealers Association (NADA), “The average price for a new car purchase is $30,000, and unless you have been stashing money away for a while in order to make the purchase, financing is probably a necessity for most buyers.” Financing can also be a savvy way of saving money; at today’s low rates, it may make sense to finance instead of removing money from a 401(k) or from investments that are yielding a higher rate of return than what will be charged on a loan.
If you need to finance the purchase of a car or truck, Bachman Chevrolet has put together a thorough rundown of credit reports, how they affect a buyer’s rate, and the privacy concerns some buyers have about their credit report being pulled. This is part one of a two part series on the topic. Look for part two next week. Here some important things to know about your credit reports.
Why Car Dealerships Run Credit Reports
For automobile dealers, a credit report is a useful tool to increase efficiencies; helping to locate the right vehicle based on a customer’s budget, and saving customers time and money. It is also necessary to protect consumers and dealers alike against undesirable or fraudulent transactions.
Lenders typically offer their most competitive rates through the dealership, the theory being that in doing so, they have a better chance of capturing the business at the source, rather than simply hoping that the customer wanders into one of their branches. Most dealerships have relationships with a number of quality banks and credit unions.
How Does My Credit Score Affect My Buying Experience?
The score is only part of the overall equation. Credit is typically broken down into different classifications: Super Prime, Prime, Near Prime, Sub-Prime and Deep Sub-Prime based on a myriad of different risk factors. Lenders base their rates on these risk factors, including things like a person’s credit score (FICO), the Loan to Value of the vehicle (LTV), a customer’s Debt Ratio, and their Payment to Income Ratio (PTI), which takes into consideration what a person makes compared to what they are paying out.
Customers benefit greatly by having the expert advice and experience of a dealership’s Finance Department. Reputable dealers know by providing good service to their customers and by helping them to successfully navigate these waters to obtain the most competitive financing, they are building a lasting relationship and trust that will ensure repeat business in the years to come. Dealers have access to many quality lenders and they specialize in locating the most competitive lender for each circumstance.
When Should I Allow A Dealer To Pull My Credit Report?
If you feel comfortable with the dealership, their products and intentions, and you are interested in possibly doing business, it is best to have the dealership determine the optimal finance and payment options early on in the process. In doing so, they can help you choose a vehicle that both fits your needs, and your budget. That is why it may be helpful to provide information needed to obtain a credit report earlier, rather than later. Based on the results, dealership personnel can provide meaningful input about rates, payments, and what price vehicle will best fit into your budgetary requirements.
What Information Will A Dealership Use?
A car buyer’s credit report reflects two things that affect whether they will receive a good car loan:
Financial history. This is a record of your ability to borrow money and repay it on time. Approximately 30 different credit-related factors are compiled in this report including payment history, amount of outstanding debt, and the length of your credit history.
FICO Score. The credit bureau combines all the factors in your credit history into one numerical score commonly referred to as the FICO score. This ranges from 350 to 800, with the higher score being the best. The dealership will use that score combined with other factors as it contacts different lenders to determine if they will give you a loan, and under what terms and interest.
In part two, publishing next week, we will be answering questions like: Can a dealership run my credit without my knowledge? Will my FICO score drop if the dealer runs my credit? What can I do concerning my credit before shopping? Stay tuned!