Need new wheels? Unless you can afford an all-cash purchase, your credit score is going to have a major impact on whether you’re able to get a good deal on a car. Buyers with bad credit may end up paying $150 or more per month on their auto loan than someone with excellent credit, according to data from myFICO.
Eighty-six percent of people buying new cars rely on financing, according to credit scoring agency Experian, with a typical loan amount of nearly $30,000. Someone with a credit score in the excellent range (between 720 and 850) could score a 48-month auto loan for that amount with an interest rate of 3.27% and a monthly payment of $668. A buyer with credit score in the 620 to 659 range would pay $752 a month at a rate of 9.4%, per the myFICO loan savings calculator.
Subprime borrowers will shell out the most to buy a new car. A person with a credit score in the 500 to 589 range might be offered a $30,000 loan at 14.91% interest, which translates to a monthly payment of $834. And that’s assuming they can find someone willing to loan them $30K in the first place.
Clearly, having better credit can pay off big when shopping for a vehicle. Over the life of a four-year loan, the buyer with sparkling credit will pay $2,045 in interest. Someone with mediocre credit will shell out an extra $4,060, and the subprime borrower will pay $7,967 more, for a total of $10,012 in interest.
The financial picture is even worse for used car buyers, especially those with poor credit. Though people borrow less when buying used cars, interest rates are generally a bit higher, in part because people are more likely to default on these loans, MarketWatch reported. Used car buyers with poor credit are hit with a bigger penalty than prime borrowers.