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Does Credit Score Affect Your Auto Loan?

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Most of us by now have seen countless advertisements that underscore the importance of your credit rating to future purchases. Although many of these employ dramatic scare tactics to get their point across, there is a grain of truth to the notion that your financial management can have a significant future impact. Nowhere is this score more important than when you buy a house or when buying a new car.

If you have never looked into the topic before, it may be useful to understand some basics about your credit rating. Nearly everyone nowadays uses the FICO score for credit rating — a number that ranges between 300 and 850 for every individual. Countless past decisions can affect that number, including late payments, credit default, collection notices and filing bankruptcy. Generally used car dealerships as well as new car sellers prefer numbers well above 700 for them to offer the best terms on an auto loan but it is possible to get auto loans with lower credit scores - you'll just pay for it in higher interest rates.

Why does any of this matter? The simple fact is that hardly anyone puts down a full cash payment for a car nowadays. Most car purchases involve some sort of financing that includes money down and monthly payments that may range years into the future, whether you are buying a new or used car.

What kind of interest rate you get and closing terms you can expect are generally based on your credit score, which is why more experts recommend monitoring such numbers on a regular basis. Auto dealers who have been burned in the past tend to be far more conservative about the deals they make available.

Of course a number of other considerations enter negotiations with auto dealers as well, including down payment, income, trade-ins and any prior relationship with those auto dealers. Savvy buyers who return to the lot every couple of years know there can be plenty of wiggle room if you understand how to conduct a negotiation. That said, there is no more ironclad way to save money with auto dealers over the long term than keeping up with payments and limiting your debt.

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