Car buyers today have so many options from which to choose, the entire process can sometimes feel overwhelming. Finding the perfect vehicle at a price you can afford is possible if you know what to expect when shopping for a car. An important yet often overlooked aspect of the car buying process is the actual financing of the car loan.

The average consumer will finance all or part of the purchase price, however many begin the process without any knowledge as to how the car loan will be handled. Here we look at one important aspect of car financing often overlooked until the last moment; the importance of your credit score when applying for a car loan.

Know Your Credit History

The time to review your credit history is before the car search begins, not after. Request your credit score and review your credit report to see what lenders will be looking at when considering your loan application. Your credit score and the information provided by your credit report will determine your creditworthiness. High credit scores are viewed favorably by lenders whereas mid-to-low range scores are viewed as an indication of higher risk.

Your credit score is the best predictor of loan approval and financing terms. Buyers with less than perfect credit or no credit at all are encouraged to improve their score before applying for car loan financing. (Related: What is a Good Credit Score to Buy a Home)

Good Credit Score Range For Buying a Car

The great interest rates and favorable terms found in car advertisements are intended for “qualified buyers”. This means individuals with a credit score of 700 or higher are offered the best deals. Buyers with a credit score below 700 may still qualify for financing, however the terms will be less favorable. Interest rates may be 5% higher for less qualified buyers.

If your credit score is 600 or lower, most lenders will either deny your application or offer financing with very high interest rates. These credit scores should serve as a guideline to gauge where you stand in terms of financing options. Each lender may use a scale that varies slightly from the credit scores mentioned here.

Knowing your credit score in advance gives you the opportunity to discuss financing qualifications before the loan process begins. If your credit score is within a few points of the next higher range, postponing loan financing will be to your benefit. By taking steps to improve your credit score, you could shave hundreds or thousands of dollars off the amount you repay on your car loan (Credit Score Range).

Options For Bad Credit Buyers

If your credit score lands in the lower end of the range, buying a car right now might not be the best financial move. Higher interest rates may push what was originally an affordable price into the unaffordable range. Making a financial commitment of several years with less than favorable terms could spell disaster if you experience a financial hardship or emergency.

If you cannot put off the purchase of a car until your credit is better, research options for buyers with bad credit. You may find a better deal at a bank or credit union not associated with the dealership. To lower the amount of money financed, apply as much of a down payment as possible to the purchase price. Also ask about refinancing options in the future should your credit improve over time.