Auto lenders pull your credit report and receive your credit score prior to making any decision on financing offers. Those with the best credit scores, considered Tier 1, get the best loan rates and borrowing terms. If you fall just short of that benchmark, you may be in Tier 2. You may still be able to get financing for the car you want, but you’ll have to pay more for the privilege.
Though the credit score range for Tier 2 varies based on the lender, it’s typically between 660 and 699. Tier 1 scores usually require a credit score of 700 or better. If your score is right on the border, like somewhere in the 690s, check your credit report to see if there’s any way of raising your score a few points quickly. Fixing a mistake or paying down the balance on a credit card or two to improve your utilization ratio can give you more options and better terms for a car loan.
What You'll Pay
Autobytel reports that the difference in interest rates could be up to 4 percent between Tier 1 and Tier 2 credit. This could get you a loan at around the prime rate, but not zero percent financing or other promotional financing offers. The difference isn’t always that stark, however, and you may only be paying a percentage point or two above the rate given to those with perfect credit. Shop around before going to the dealership. Your local credit union, for example, may offer members a more competitive rate than a car dealership.
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