Many people use car loans to purchase cars, trucks or other automobiles instead of paying cash. As with all loans, borrowers must pay back the loan with interest. These payments can affect your credit score in several ways.
Significance
Car loans are a line of credit that financial institutions issue on the basis of your creditworthiness. According to Edmunds.com, your payment history is a major portion of your credit profile. Automotive loans with on-time car payments positively affect your credit score, while late payments and non-payment hurt your credit rating.
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Lending companies report late payments to credit bureaus, where they will lower your score. According to the CMPS Institute, making a car payment 30 or more days late will adversely impact your credit score. In addition, making a payment 90 or more days late will have an even greater negative impact on your score.
Considerations
If is imperative for you to ensure that you make your car payments in full and on-time. If your credit score drops, it will become very hard for you to obtain a new car in the future.
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