When considering car finance, one of the key points to note is the interest rate. In particular, the fact that unless otherwise stated, the lowest interest rate advertised by most lenders will refer to applicants with a good credit rating. When car finance interest rates rise following any RBA rises so does the importance of credit scores as the cheapest rates are offered to good credit profiles.
A credit rating essentially is a rating of risk. The lower the rating the higher the risk. The higher the rating the lower the risk. The lower the risk the lower the car finance interest rate. To ensure car finance applicants are offered the cheapest possible interest rate loans, they will want to ensure they have the highest possible credit rating.
There are very strong indications that the Reserve Bank of Australia (RBA) will start to raise the cash rate very soon. Any moves by the RBA typically flow on into the lending sectors. Subsequently, that means that interest rates on most new loans and finance will be lifted. By how much will depend on the individual policies and approaches of banks, finance companies and other non-bank lenders.
To assist car finance applicants we provide an explainer of credit profiles and ratings, how they impact the loan offer, how to access a copy, how to address issues with credit scores and individual and business balance sheets and how to achieve the cheapest interest rate car finance.
Car Finance Rates and Credit Rating
Lenders assess the credit score or rating of loan applicants when preparing a car finance offer. A low credit score or rating is taken as a sign that the applicant is a higher risk. A good credit rating is a sign that the applicant is a lower risk – they have a proven track record of repaying debts, have less money borrowed and other issues.
Higher risk applicants may be typically offered a higher interest rate than a lower risk applicant. The difference in that interest rate may add up to a considerable amount over the loan term. When rates in general across the lender market rise due to RBA moves, it can become more important than ever to maintain a good credit rating.
Credit Score: Explainer
The terms credit score and credit rating are essentially interchangeable, they are the same.
Anyone that has ever applied for a loan or credit, taken out finance, has a credit card or an account with a utilities or telco provider will likely have a credit report. The report is the entries or history of your information in regard to repaying debts and bills and applications for finance.
It includes details of repayment history and any defaults on bills, loans and credit card payments as well as applications for finance.
The score is a band or number which is calculated based on issues including the amount of money that has been borrowed; how many applications for credit have been made; and whether or not payments are made in a timely manner.
Scores can range from zero as rated as poor or bad credit score up to 1,000-1,200 being the highest.
Credit reports are held by Credit Reporting Agencies including companies such as Experian, Equifax and Illion. Credit providers such as banks, utilities providers, finance companies and others report to these agencies with data about the payment history and loan applications made by individuals.
This data is collected and represents the credit report or profile.
Sourcing Credit Profile
Free copies of credit profiles can be obtained. There are numerous ads which offer to provide credit profiles for a price. Before clicking through to these, check out the free of charge options. For quality and reliable information on credit profiles and scores, refer to the Federal Government website Moneysmart.
Credit profiles can be acquired through recognised Credit Reporting Agencies.
Moneysmart advises that credit scores can be obtained at no charge from online providers including Canstar, Finder and Credit Simple. There are conditions attached such as agreeing to their privacy policy. If those conditions do not suit you, try another source. Moneysmart also advises to avoid a credit score provider that requests payment or asks for your credit card information.
When a credit profile copy is obtained, the information should be checked to ensure it is correct and accurate. Any errors or wrong information which may appear can be fixed by request to the reporting agency. This is a free service.
In this era of identity theft, it can be wise to check that all the entries on a credit report are actually yours. If there are loans or loan applications which are not yours, this could indicate an error or someone else is using your identity.
Improving Credit Profile and Loan Interest Rate
Another part of the overall credit profile is the individual or business balance sheet. This is the assets or goods, cash savings, investments and property owned compared with the liabilities, which are the debts and monies owed. When assessing applications for personal car loans and business vehicle finance, lenders will review the balance sheet of the individual or business.
Prior to applying for car finance, it can be wise to address the balance sheet and see if there are any actions which can be taken to improve it. Some of the basics can include reducing debt levels. This may involve paying out any existing finance or loans and especially addressing commitments such as the amount on credit cards.
By reducing debt the liabilities side of the balance sheet may be improved and that may improve the general credit profile and as such attract a better interest rate offer from lenders. The impact of any changes may take time to be reflected in the actual credit score but they should be clearly set out in the loan application.
One very important way that we can assist the credit profile of individuals is with our broker-style motor vehicle finance services. The number of loan applications made by individuals are reported and can reflect negatively on a credit score.
In the quest to get the best car loan themselves, individuals may typically apply for many loans. Not realising that while trying to achieve a good outcome they may be doing harm to their credit profile.
When a Jade Car Loans sources car finance offers from across our vast lender panel, it does not have the same impact on the credit rating as multiple applications made by an individual.
Using our services can assist in achieving the cheapest interest rate car finance, regardless of the general market trends, as well as saving our customers time and importantly, affecting their credit rating.
Interest rate increases due to RBA decisions are unavoidable. But there are steps that those seeking car finance can make to ensure they will achieve the lowest business car financing rates on their car loan.
For better interest rate car finance for private and business vehicles contact Jade Car Loans on 1300 000 003
