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The Car Buying Process: How Timing and Credit Scores Affect It

by iTHINK Financial | Sep 01, 2021

Car Buying ProcessCar buying is exciting, but it can also be a stressful process. Even during the pandemic, over 14 million cars were sold in 2020, so many Americans know the process well. A couple of factors can make or break the car buying process, and you should know about them! Let's talk about how timing and credit score affect the car buying process.

How Timing Affects the Car Buying Process

There are many ways that timing alone will affect the process of buying a new car. From the time new models are released to when you can find the best deals, here's what you need to know about timing your purchases.

Sales/Discount Seasons

Car dealerships advertise their sales all the time for specific events. If you've even walked by a radio or television in the last 20 years, you've heard the ads for them. Timing your new car purchase during the sales is great, but sometimes they have leftover inventory that they need to clear after the sales, which drops the price even more.

That means that if you hear "Labor Day," "Memorial Day," or "Holiday sales event," then trying to time your purchase right after that sale could save you some money! Some say that December has better sales than other times of the year! Buying from a dealer isn't always the best way to save money either. It's a good way to limit your risk of getting a poor-quality vehicle, but it isn't always the cheapest. Buying from an owner may save you some money if you don't mind the extra work to get it registered, inspected, and insured.

Another idea is to wait until the tax-free holiday to get the most bang for your buck! If you don't think sales taxes are a big deal when buying a coffee for $3, it adds up to a lot of money on a larger purchase like a car. If you're buying a $30,000 car, forget about a 3% interest rate! A 6.25% sales tax rate leaves you paying an extra $1,875. However, if you're a month away from April when you find yourself needing a new car, hold out if you can and save up a little extra for a down payment while you're at it.

Interest Rates

Interest is one of the biggest ways to save on a purchase. We'll get to how credit affects this, but for now, understand why it's important. If you have a reason to believe that your credit score is about to go down, but you aren't in a poor financial situation, purchase while you can.

This is because the better your current score, the better your interest rates. The difference between a 2.49% interest rate and a 5% interest rate on a $25,000 loan is over $627. In that context, it doesn't seem like a lot, but let’s unpack it a bit.

If you were going to the store and you wanted to buy a bag of cheese, and that bag of cheese was going to be $632 instead of $5 like usual, would you buy it? Even if it was just once? No, you wouldn't. Well, $627 is the same no matter what.

You can't change your credit score overnight, so it’s more advisable to wait until your credit is repaired or shop around for the best deal. Some lenders will offer better interest rates than others, so do your due diligence, and it will pay off!

Personal Financial Circumstances

Your current financial situation plays a huge role in determining the timing of your purchase. For example, if you're facing high-interest debt like credit card debt or don't have enough for a down payment, now may not be the right time to purchase a vehicle.

If your car needs repairs and still has low mileage, purchasing a new vehicle isn't always the right choice. Some people don't want to bring their cars past 100,000 miles, but this is a financial mistake, even if you need to repair something.

For example, if you have $2,000 in damages on a vehicle with 80,000 miles, it's probably worth it to pay for the damages through insurance or out of pocket. That's a small amount to pay for another 100,000 miles or more with good maintenance instead of spending $20,000 on a new vehicle just to run it another 80,000.

Switching To a Car:

If you can get away without a vehicle, consider whether or not purchasing one is right for you.

If you're switching from public transportation to a personal vehicle, make sure that's the right decision for your current needs. If more of your travel will be within a city or on a route with reliable public transit, then make sure you know your parking situation, fuel cost, and more to see if the cost is worth it.

If you're used to relying on rideshare transportation like Uber/Lyft, a monthly car payment under $300 will likely save you quite a bit of money, as long as you factor in the cost of regular parking at work and other expenses. The same thing goes for biking, walking, scootering, or anything else. A car will definitely be more expensive than those modes of transportation, so make sure that cost is affordable and worth it to you.

Emergency Expenses:

If you are switching to a car from using other forms of transportation, be aware of potential emergency expenses. These are an even greater risk for used vehicles.

We have car insurance for a reason, but there are times where you need routine maintenance, towing, or some other service that your insurance won't cover. Car ownership comes with the need for preparation of these expenses. Will you be able to pay a surprise $500 bill for a tow and a new wheel? How about $1,000 for a new engine? Make sure you're prepared for the worst while you hope for the best.

How Your Credit Score Affects the Car Buying Process

Your credit score is the best system for lenders to gauge your creditworthiness and how much interest to charge you. It considers the information in your credit report from your payment history, length of credit history, hard inquiries, credit card utilization, and more.

As we mentioned, your credit score will affect the interest rates on your car loan, but that's not all. It will even affect your ability to purchase a car in the first place. If you have low credit or no credit history at all, you may not even be eligible to buy a car in the first place unless you have the money to buy it upfront. However, a good credit score from a credit bureau can make the car buying experience painless and effortless.

What Is Considered a Good Score For Buying A Car?

If you're looking to purchase a vehicle over $10,000 and plan to take out a loan for it, you want to have a credit score of at least 680, but ideally over 700. The difference between a 680 score and a 750 score could be the difference between a 6% interest rate and a 2% interest rate. If you're above 750, you shouldn't have a problem securing a loan.

If you're buying a car with a credit score in the range of 600 to 680, it may still be financially worth it, especially if you don't have reliable public transportation in your area. Just shop around for the best rates and see what you can get. If you're under 600, do what you can to improve your score before making such a large purchase.

How Can I Improve My Score?

Even if you're planning to buy a car immediately, you should still work on improving your score. Not only is it good for your all-around financial health, but it will directly save you money on your next car purchase. If you buy one now and need another one in 10 years, that's plenty of time to improve your score.

You don't even need to think that far ahead to be concerned with your score. Even if you purchase this vehicle with low credit and get a higher interest rate, spending a year or two improving your score will allow you to refinance your loan and save on interest. Even if you do this 3 years into a 5-year loan, you could eliminate an entire payment at the end of your term.

Make consistent payments, don't overload your credit cards, pay them off every month, and don't take on any unnecessary debt. Look for every opportunity you can find to improve your credit score. If you think it'll save you a lot on a car, wait until you buy a house!

Secure Your Loan Today!

Now that you know some of the biggest hurdles in the car buying process, do what you can to get the right loan! Stay up to date with our latest financial news, and check out some great vehicle loans to get started on your search.

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