What is the correlation between a car loan and your credit score? The car loan, despite being obtained for an asset and despite the hypothecation of the asset to the lender, is as good as an unsecured loan. This is because the value of the secondhand automobile comes down drastically as compared to a brand new one. The moment you drive out of your dealer, your automobiles value comes down by more than fifty percent. This is how the industry works.
Hence, selling your car to recover the amount owed is not feasible for car loan providers. This is where the score enters the picture. If you have a high credit score, lenders will be of the opinion that you will not default on your loan. Hence, improving your score is very important if you want to get a cheap automobile loan.
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There are many persons who advise those with low credit scores to go in for an automobile that will fit their credit score rather than the other way around. The primary reason why this advice is given is that it is not very easy to improve the score very quickly. Well, you have a few options at your hand if you want to improve your credibility in the market.
One option is to go in for an inexpensive loan and repay it promptly. This is one of the best way to improve your score. This means that you can use the automobile loan to improve your score. However, this will place heavy financial responsibility on your head that cannot be avoided.
Secondly, you can check whether the poor score has been caused by incorrect information. If that is the case, you can quickly file a dispute and settle the matter within thirty days. Once this is done, you can apply to your automobile loan provider again along with a letter from the credit bureau informing them of the mistake and the subsequent rectification of the same.
Thirdly, you can go in for an automobile that fits your current score and repayment capacity even if it is not the one that you really want. Keep this as a last option because there are better solutions available in the market that will help you overcome your credit problems. The important point is to keep this as the last resort option. If possible, even tried to postpone the decision to purchase the automobile until the credit score improves.
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