Is the interest rate for a car loan based upon your credit score/FICO score?
After purchase, can a loan be renegotiated for a lower rate?
Your credit score is an important factor in getting a low interest rate on an auto loan, although it isn’t the only factor a lender evaluates when approving a loan. The car (new or used), loan term length (longer terms typically have higher rates) and the lender itself (always shop around for the lowest rate) all have a play in the loan’s interest rate.
The Cars.com Financing Advice article, “Understanding Your Finances,” gives a brief overview of credit scores:
“The credit scores that banks look at are based on ratings from the Fair Isaac Corp. (FICO), which provides a mathematical formula that ranks your credit worthiness against that of other borrowers. Your rating is based on your credit history at the three major credit bureaus — Experian, Equifax and TransUnion. FICO scores are the most widely used credit scores, with more than 70 percent of the largest 100 U.S. financial
institutes using them.”
Credit scores using FICO ratings range from 300 to 850, and in today’s market, a “good” credit score is considered 720 and above, according to a LendingTree.com representative. Credit scores are, in fact, an indication of risk, and if you’re high-risk with a low score, the lender will likely qualify you for a high interest loan.
If you’re saddled with a high interest rate, it’s possible to refinance and get a loan with a lower interest rate from another lender; especially if you’ve improved your credit since the initial loan was approved. When you refinance, a new lender will pay off your existing loan and issue a new loan with a lower interest rate, if you qualify for a lower rate.
Your monthly payments might not be drastically reduced with a refinanced loan, but the total amount of interest paid can be cut; this depends on your current interest rate and individual circumstances, of course.
You can find more detailed information about financing, refinancing and interest rates at Cars.com in our Financing Advice section.