When used car buying in Orlando, having the proper funds in place before committing to a transaction will help it go faster and smoother. If a buyer isn’t walking onto a lot with cash in hand, one option for getting funding is from the dealership itself. However, for buyers with little or poor credit, this may not be a viable option, depending on the financial institution the dealership is using.
How Lenders Assess Good Credit for a Car Loan
According to Carfax.com, the FICO credit score is the one used by the majority of US lenders, and it is based on information gathered from Equifax, TransUnion, and Experian credit reporting agencies. FICO scores fall somewhere between 300 and 850, and every consumer has a FICO score.
Different lenders have different criteria on which they base their decisions to grant credit. Experian says that a credit score above 700 reflects good credit management on the part of the borrower. There is, unfortunately, no minimum credit score for being able to get a loan to purchase a used car. Different lenders have score requirements varying from 640 on up for used car loans.
When Borrowers Do Not Have Good Credit or Have Little Credit
There are lenders who will offer funds to people with less than wonderful credit. These loans are referred to as subprime loans and they are not available from every lender. Those in the process of used car buying in Orlando may even be able to get a subprime loan directly from the dealership.
Subprime loans are available to people who have credit scores from 501 to 600, and borrowers in this category get charged higher interest rates, often 3 to 5 times higher than borrowers with good credit. This can mean the difference between a 2 percent loan for borrowers with good credit and a loan rate of from 6 to 10 percent for borrowers with marginal credit.
The specific interest rate that is tacked onto a subprime loan varies from lender to lender, and even within the same lender, based on the lender’s perceived risk with a particular borrower. The standards lenders use to determine risk categories take into account the loan size, how the loan repayment plan is structured, and who the originator of the loan is.
What to Expect from Lenders When Used Car Buying in Orlando
There are many elements of a borrower’s life that lenders assess when determining whether a loan will be repaid and whether a borrower is a good loan risk:
- Whether credit card balances are low is one assessment factor. A borrower’s credit score is based in part on his or her ratio of outstanding balance to available credit. The amount of credit cards carrying a balance is another factor that affects a credit score and how much of a risk an applicant poses to a lender.
- Whether the borrower pays bills on time is also used to evaluate whether a borrower rates a prime loan or has to settle for a subprime loan. Even fines from overdue library books that go unpaid for a long time can be reported to a credit reporting agency and taken into account by a lender.
- Missing payments, charging more than usual, or paying less than usual are also big red flags to credit bureaus and lenders.
A quality car dealership in Orlando will evaluate credit bureau information and determine what type of loan a borrower can get.