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How much does a car loan hurt your credit?
Does a car loan lower your credit score? I’m thinking of taking out a car loan but my credit is already not great. I’d hate for my score to go down more.
Hana Sabah · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
It makes sense to worry about your credit score, but there are actually some long-term benefits of getting a car loan!
Most buyers experience a temporary drop in their credit score after taking out a loan. However, if you make on-time monthly payments, then your credit will gradually improve.
Here’s why. The following items are factored into your credit score:
- Credit extended to you
- Your payment history
- Amounts owed
- Length of credit history
When you’re approved for a loan, a new line of credit has been extended to you, which is good. Plus, you’ll have the opportunity to make on-time payments for several years, which will prove to creditors that you are a low-risk lendee—that’s also good!
And with those payments, the amount you owe on the loan will go down over time, boosting your credit score a little each month. All of this activity is reflected in your credit history and will serve you well when utilizing credit to pay for other big purchases (like a house!).
Since you’re planning to get a new car, make sure it’s covered by great insurance at a great price with the
Jerry
app. It takes less than a minute to sign up and you’ll be presented with competitive rates from up to 50 top providers. The average Jerry user saves $879 a year on car insurance.View full answer
- Gregory R.
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Jerry partners with more than 50 insurance companies, but our content is independently researched, written, and fact-checked by our team of editors and agents. We aren’t paid for reviews or other content.
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