There are several different types of car finance options available and most of them come with an APR variable. This means that each finance package comes with variable interest rates that can be affected by several factors that can either lower them or raise them. One of the primary determinants is your credit score. Not only does your credit score affect whether you will be accepted or not, but it will also affect how much interest you pay on your package.
The lenders
Finance lenders use credit scores to help them decide how much of risk you are and how likely you are going to be able to pay back your finance offer. Credit checks are triggered every time you apply for car finance and each lender has their own set of requirements needed from your credit score for you to be accepted.
Lenders and dealers usually have a representative APR advertised on their own website or on “best buy” tables on comparison websites. This APR is more of a guidance percentage and therefore the lender does not have to give you that interest rate, which might be relatively low. The truth is that the representative APR is usually only offered to just 51% of those who apply for car finance.
Instead, you will be offered a personal APR. This will be determined by your own circumstances and is particularly affected by your credit score. The lower your credit score, the higher your personal APR will be.
Rate of risk pricing policies
Each time a person applies for car finance, lenders group them dependent upon their credit score and other factors. Each group is rated by their risk when it comes to being able to pay back the loan or not. If most or all the people in a group have low credit scores, the lenders will judge that group a high risk and therefore place higher APR rates on the entire group.
Avoiding those higher interest rates
The best way to avoid those higher interest rates is to improve your credit rating. The better the credit score, the less risk you pose to the lender when it comes to getting you a car finance package with low-interest rates. You can get car finance for bad credit, but these agreements usually come with higher interest rates, precisely because of the low credit scores of those who apply for them.
If you are interested in getting a car on finance, a good idea would be finding out what your credit score is beforehand. This gives you a chance to work out how much interest you will likely be paying on a car finance package before you apply.
You can apply with us by telling us your monthly budget and the type of car you are interested in. Our staff will work hard to find you the right deal that suits your needs and your personal circumstances. Whilst other dealers will either offer you just a car or just a finance deal, Hippo Motor Finance offers you a car and finance deal in one hassle-free package.
