Car prices have been soaring. Blame the microchip supply chain, or whatever other market factor you like, the fact is that car prices have gone up significantly. According to industry expert Kelly Blue Book, the average price of a new car in July of this year was over $48,000! Even used cars are going up over $33,000, more than $10,000 over last year’s prices.
With prices that high, we all need to shop smarter. One way to do that is to secure as low an interest rate as possible, and the biggest factor when it comes to car loans is our credit score.
Best Case Scenario
According to Credit watchdog group Credit Karma, interest rates on used cars are higher than on new cars. It makes sense for a couple of reasons. The first is that a new car is more likely to stay on the road.
The second reason is a little more interesting. Fact is, many new car loans are handed out by the car companies in-house lender, and they want you to buy something new to drive their sales figures.
If you’re lucky enough to have a great credit score (781 or higher!), and you’re lucky enough to be able to afford a new car, you can expect interest rates as low as 3.24%.
For the rest of us, the numbers don’t look quite as good.
In the real world where I live, and where you probably do, too, roughly two-thirds of all car loans were obtained by people with a credit score of 759 or lower, with almost half coming in at 719 or lower, based on loan dollar amount, in 2021.
If you take the amount of the loan out of the equation, almost half of all car loans were obtained by people with less than a 700 credit rating.
That’s good news if you figure that according to Equifax (one of the Big Three Credit Bureaus), the average American credit score is 698 in 2021.
Another way to look at that, though, is that nearly anyone can get a car loan–and the average American does get a car loan, and so the average credit score for borrowers is the same as the average score of people in general.
What Score You Need for a Good Loan
The real question that most Americans are looking at is “What score do I need for an affordable loan?” After all, you can get a car loan with a score under 500, but your interest rate will be an astronomical 21%.
Here’s how the numbers play out for Credit Scores and what your payments might look like.
Keep in mind these numbers don’t take account of any down payment, which is taken directly out of your loan amount, and all figures are based on a 5 year (60 month) loan.
It’s Easy to See
From the numbers, anyone can see how important it is to raise your credit score by as little as sixty points, or so. Going from 599 to 662 can be a $200 a month difference in car payments.
I’ve been writing about how to boost your score in as little as a month, and even have a review of credit repair companies that can get you that credit score increase. The numbers don’t lie: it’s in everyone’s best interest to do what it takes to boost our scores.