The Role Of Credit Score In Auto Finance

For the people who have taken some sort of loan in the past this point is clear that the whole lending industry goes on the basis of credit score. It is the most important factor for any type of loan such as auto finance, personal loan or home loan. For people who don’t know why this is, the following lines can explain their importance – credit score is the record of a person’s all prior credit borrowings and repayments. Well, it is a rating which is based on the credit report but one look at the score can tell as to whether the person is a good borrower or not.

When a person takes a loan such as a credit card, a small personal loan or even acquires services such as cable and electricity, he/she is taking money or services before and paying for them after. This money or services count as credit or debt for the person. Now, when the time comes to pay back the installments or the fees, if a successful payment is made then the credit score is increased but if the payment isn’t made then it results in credit score reduction. The lender sees the transactions as well as the credit score to make the decision. If the score is high or the history is good then there are more chances of money coming back over the loan period and the interest rate charged on the auto finance is low.

If however, the credit score is low or the history is poor, then the interest charged is high because of the high risks taken by the lender. Due to this high interest, the lender gets to make money quickly over time and also earn back the money as soon as possible. For example, if the interest rate is increased by 5 percent then the lender is getting back his/her money five percent faster than before.

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