Every couple of years it becomes necessary for most people to get a new car to replace their old one. Regardless of what kind of car they need, it's necessary in most cases to receive some kind of financing. However, getting a loan for a vehicle usually requires good credit; without it, financing can be difficult.

If you're thinking of buying a car in the near future, here's what you need to know about how credit scores can influence your ability to access auto loan options.

What Exactly Is A Credit Score?

A credit score is a number ranging from 300 to 850 which indicates to organizations and businesses the likelihood that a borrower will be able to pay back a loan. The lower someone's score, the lower their creditworthiness and the higher a score is, the greater chance they'll be able to keep up with their loan obligations.

Credit scores are determined by a variety of factors, but how long an individual's loans have been outstanding, whether payments are made on time, and the number of loans people currently have or previously paid off, form the primary basis for calculation.

The state of your credit score can go a long way to determine what kinds of loans you're eligible for and the likelihood you'll be extended credit.

Why Your Credit Score Matters

There are numerous ways in which your credit score can drastically change your car shopping experience; here are some of the most important issues to keep in mind.

Where You Can Get Loans Will Be Affected

Having a high or low credit score is going to determine a lot when it comes to your loan options.

The most obvious place you can end up receiving a loan is from a car dealership, although a bad credit score can severely hamper their willingness to offer favorable auto financing, or to even offer at all. They would be more than willing to accept your money or the money from a financial institution that you're borrowing from, but taking on the risk themselves is something they would probably avoid.

Alternatively, you could always go to a bank or credit union to improve your odds at loan access, although similarly a low credit score might prove problematic.

As a last resort, there are many third-party companies out there that specialize in providing people with low credit scores loans to pay off vehicles. Of course, these loans typically come with some pretty unfavorable terms, which can definitely be an issue.

So, overall, a low credit score can result in a lot of loan application rejections from multiple lenders.

It Impacts Your Loan Interest Rate

Beyond just getting access to a loan, credit scores dramatically impact what kind of interest rate you'e going to end up paying.

Occasionally, you can find loans with 0 APR, although they're exceptionally rare and only available to those with exceptional credit. For individuals with more modest credit scores, numbers can range from as low as 3.65% to upwards of 19-20% in some cases.

It Can Potentially Lower Your Credit Score

In addition to the aforementioned problems, there also arises the issue of how applying for lines of credit might end up affecting your credit score.

Too many loan applications all at once can cause some real damage to your credit rating as it gives the impression you're desperate for money and lenders aren't offering loans for potentially good reasons.

One potential way you can get around this issue is by applying for all the loans you're interested in within a 2-week period. Credit agencies only account for new loan applications every two weeks, so any credit score requests from lenders that take place within a 14-day span will just be considered a single request, which is unlikely to affect your credit rating.

What Can You Do If Your Credit Score Is Too Low?

Obvious workarounds for dealing with the effects of low credit can include building up a good score over time or just saving up for items, rather than taking out a loan; however, this can be unfeasible for a variety of reasons.

Instead, it might be a good idea to request a car loan from your own financial institution that you use for banking. Even if you have a low credit score, if you have a personally good relationship with your bank or credit union, they might give you a line of credit because they have trust in your ability to pay a loan back.

Making Sound Financial Decisions

Finances aren't the easiest thing to navigate in the world, but it's definitely possible one way shape or form. Keep in mind that although your credit score might not be top-tier, it's still possible to get a decent loan if you really need it.