Part of being financially literate is being familiar with how, for example, your credit score impacts a corporate decision to grant you a credit card, what mortgage rate is offered, whether a landlord approves your tenant application, what kind of auto loan is recommended, what choices of auto are available (depending on size, price and down payment), and so forth.
Although the car shortage seems to be in the rear-view mirror, the days of falling sticker prices and interest rates don’t seem to be getting any closer. ‘You can find the right car that you want now,’ Ivan Drury, director of insights at the car-shopping platform Edmunds.com, told USA Today. ‘The thing is, are you going to find the right financing now that sort of puts the cherry on top for you?
An ‘above average’ or ‘good’ credit score could be the difference between someone being able to afford the monthly payments of their dream car. If you have a high credit score, lenders will see you as low risk and so may offer you a good interest rate as a reward.
On a car loan, the difference between good and bad credit could be ‘several hundred dollars’ per month, Bankrate senior industry analyst Ted Rossman told CNBC.
How Your Credit Score Impacts Your Monthly Car Payments
The FICO-Score is measured on a scale of 300 to 850. A ‘very good’ score is 740 to 799. A ‘good’ score is 670 to 739. Anything between 580 and 669 is ‘fair’. ‘Exceptional’ is above 800, while a ‘poor’ score is 579 or below.
Needless to say, the best APR will go to those with the greatest credit score, and the worst APR to those with scores closer to the bottom of the list, as reported by CNBC here is how FICO is dishing away the best APRs:
720-850: 7.5 percent
690-719: 8.65 percent
660-689: 10.42 percent
620-659: 12.57 percent
590-619: 16.94 percent
500-589: 17.8 percent
Kelley Blue Book’s website says that, on average, the price of a new car is $48,644. Chances are, with 15 per cent down and approved for a 60-month loan, your car payments will fall somewhere between $829 and $1,045 based on your approval tier, depending on your credit score, per CNBC. Prices based on FAICO calculations, as reported on CNBC.COM.
720-850: $829
690-719: $851
660-689: $887
620-659: $933
590-619: $1,027
500-589: $1,045
But the silver lining is that ‘Credit scores are always evolving,’ she told us, ‘and other actions can help raise them.’ ‘A lot of the credit-building tips are a long game: Pay your bills on time, keep credit balances low and show you can handle different types of credit over time,’ Rossman said.
And while it accounts for about 20 per cent of the decision-making process when it comes to auto loans, the credit score is not the only factor that lenders are interested in.
They’ll examine your credit report, your debt-to-income ratio (DTI) (your monthly debt payments versus your gross monthly income), your employment history and more. If your credit score isn’t great but your overall financial picture is healthy, your chances of getting a low interest rate might improve, Experian explains.
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