Lots of people with low credit scores stress that they’ll never be able to get a car loan or refinance their existing loan. But you might be surprised by all of the factors that lenders take into account when determining whether you qualify for a loan or not. If you need some reassurance, check out some other ways that you can tell if you might qualify.
What Credit Score Do You Need To Qualify For a Loan?
You might have always thought that there was a point where you would no longer be able to get a loan, but this isn’t actually true. While a score of usually 700 or more will qualify you for the best loans and about 660 or higher will qualify you for fair loans, there isn’t a hard cutoff point where lenders will definitely no longer give you a loan. Lots of times, if you have a bad credit score, you’ll likely get a higher interest rate, and you might be required to pay it off sooner.
Other Factors That Affect Your Ability To Get a Loan
There are a number of other factors that a lender might look at when determining whether they’ll finance your purchase or refinancing. Firstly, they’ll look at your income level. For instance, if you went through a financial hardship that took a toll on your credit score but you now have a job that pays twice as much as what you were previously making, a lender might take that into account, especially if you’ve been making on-time payments with other types of debt. Taking a look at your debt-to-income ratio and the loan-to-value ratio will also help you determine whether you’re likely to qualify to refinance. You can calculate your debt-to-income by dividing your total monthly income by your total monthly debt payments.
In general, people with a debt-to-income ratio higher than 50% usually had a credit score of 725 or higher. You can use this information to decide whether you’re likely to qualify for a new loan.
How To Increase the Likelihood That You’ll Get Approved
While you can’t necessarily ensure that you’ll qualify for a loan, there are a few things that you can do to get your score as high as possible, which can make it more likely that you’ll get approved. First off, check your credit report for any false reporting. There are times that companies make mistakes, and when you catch these discrepancies, you can call all three major credit reporting companies to have them fixed.
If you’re thinking about refinancing in the coming months, you should also make sure that you continue to make your payments for all of your bills on time. This will ensure that you’re continually showing lenders that you can make your payments. And if you can, try to pay down some of your debt, especially if your debt-to-income ratio isn’t where it should be.
When you’re wondering how to pay off car loan faster, getting a better interest rate with a refinance can help, but there are actually numerous strategies, and companies like Lantern by SoFi can help. For instance, the professionals at Lantern by SoFi say, “consider examining your discretionary spending to find opportunities for additional savings that could be put towards a higher auto loan payment.”