How Your Credit Score Affects Your Car Loan Approval

When a lending company, such as a bank evaluates applications applications for car loans, they request for copies of the applicant’s personal credit reports from credit reporting agencies in Malaysia. In fact, the credit score is considered are often claimed to be one of the most integral parts of the loan approval process. It includes everything that is associated with the loan application from the credit score being high or low to how and why the credit score has fallen. Here are some of the most common ways that an individual’s credit score will affect a car loan in Malaysia.

1. Approval or Rejection: Despite the fact that there are currently some lenders who can provide auto loans for buyers with very little credit score by charging higher interest rates, there are still some situations where the numbers will restrict a potential borrower from having their auto loan sactioned. Lenders generally use a credit scoring system that is used by most credit reporting agencies that  need a minimum score for loan eligibility to approval. In most cases people with credit scores as low as 500 will find themselves in a soup when it comes to getting their loan approved for a purchasing a car. Credit scores are given, based on past credit experiences the applicant has had and are computed using formulas which consider how well the applicant met past payment obligations such as other loans, credit card bills, etc. The better the individual has been in making payments and met their credit obligations, the greater the score will be. however, late payments or failures to pay off balances, will reduce the credit score.

2. Interest Rates: Your credit score will dictate the car loan rate you are offered by a the lending company or bank. Banks often offer lower interest rates to consumers with greater credit scores. On the other hand, higher rates are offers to customers  who have shown signs and attitude of casuality in meeting their financial obligations on time and therefore have lower scores. the lowest interest rates based on credit scores are offered to those who have a credit score that has to be at least 700 and over. However, people with scores that are lower than 600 will find it hard to get a car loan interest rate lower than 10% to 15%. Often a couple of points in difference of scores might result in vast savings when it comes to saving on interest rates on a car loan in Malaysia.

3. Monthly Payments: Since your interest rate on a car loan is affected by your credit score, it in turn determines the monthly installment payments on the car loan. The higher the interest that you have to pay for a car loan, the higher your monthly car payment will be. When you think of the credit score from the perspective of how it affects a monthly car payment, you will find that a lower score can affect your finances every month until you have repayed the total amount which are counted in years.

4. Down Payments: Don’t be surprised by the amount of down payment that you might have to make, based on your credit score. Customers with substantially good and excelling credit scores would be able to purchase a new or used car with lower down payments. It is however the other way round when it comes to consumers with low credit scores and they will be required to provide an amount of down payment that is much higher.

For loan applicants with particularly low credit scores, the customer might be required to come up with thousands of ringgits before the lender will approve them for a car loan.