Use Your Credit Score to Buy Your First Car

Photo courtesy of kbb.com

Dreaming of that post-graduation see-the-U.S.A.-road-trip? Fantasizing of doing it in your new car?

Well, why not?!

After all that hard work it’s time to enjoy your success a little! Whether you buy a new car or an old one, you likely will need a loan... that is if your Dad isn't Bill Gates! Plus, it’s time. You’ll want to do it on your own; after all, it's your first real “adulting” purchase!

So how do you use your student loan to get that vintage BMW or new Jeep Wrangler? It's all about having a good credit score. And how do you get a good credit score?? By having other debt like your student loan and making your payments on time! It's that easy. The game is partly about showing you can responsibly manage debt and partly about keeping within your boundaries. 

A bad credit score equals a high loan interest rate. An excellent credit score means you might even qualify for zero percent financing on that car – this means NO interest on your loan. Why? Because you’re known to be a good borrower and do what is expected, like making loan payments on time! It’s just like being a good student and getting a B+ because you studied and not a D- because you goofed off. 

A real life example: The benefit of a good credit score – according to TrueCar.com you can buy a brand new Jeep Wrangler for $24,676 (before taxes and fees). If you had “perfect credit” you might pay 0% financing which would be a monthly payment on a 5 year loan of $411.27. BUT if you had “poor credit” you might get that same loan at 10% financing. Your monthly payment would go up to $524.29. That doesn’t sound like much but that means you could pay about $6,700 MORE for the same car!! Why? Because if you had poor credit, you may still be able to get a loan, though it will cost you more since you are a higher risk for non-repayment. Yep, that’s how it works in the real world!

As with most things in life – planning ahead can reap tremendous longer-term benefits for you. Building credit history prudently now is an excellent way to help yourself later.

Learn more about the way to build and leverage your credit score, as well as useful strategies around financial life-skills at CollegeCFO.com.

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