Summer is right around the corner, and if a summer road trip is on your agenda, you may be thinking about buying a new car if your old one is not up to the task. As with any big purchase, doing your homework on auto financing options can save you big bucks.
If you have a certain car in mind, knowing where your credit scores stand can help you determine whether you are likely to get approved for a car loan. You can access your full Experian credit report or get your FICO® Score* for free to find out where you're at.
Lenders may approve you even if you have a less-than-ideal credit score. But they may charge you a higher interest rate, which ups your monthly payment. This could put your perfect car financially out of reach.
Auto Loan Interest Rates and Your Credit Score
According to Experian's latest State of the Automotive Finance Market report, the average annual percentage rate (APR) for new cars passed 6% in 2018 for the first time in 10 years. For auto borrowers in the lowest credit score tier, the average interest rate on a new car loan was 14.85%. In contrast, borrowers with exceptional credit saw average interest rates of 4.19%.
Getting More Car for Your Dollar With a Good Credit Score
Higher credit scores can help you qualify for a loan with a low interest rate so you can drive your dream car off the lot.
For illustration, let's say you have a FICO® Score of 650, which is in the "fair" range (580-669), and are quoted a 10% APR for a 60-month term on a $30,000 loan. The monthly payment for this loan is about $637. But with a credit score in a higher range, you could get a better interest rate and monthly payment: With a 6% APR, for example, your monthly payment would drop to $580, a savings of $58 per month.
|Calculating Your Potential Savings|
|Loan Amount||Interest Rate||Term (Months)||Monthly Payment||Total Payments|
The bottom line: A good credit score helps you qualify for an auto loan and get a lower interest rate to reduce monthly payments and the total cost of the car.
How to Raise Your Credit Score Fast
In the past, improving your credit scores was a marathon, not a sprint. But now, Experian Boost™† can help speed up the process by giving you credit for the utility and telecom bills you're already paying. Until now, those payments did not factor into your score. With Experian Boost, however, this additional positive credit history can help you instantly improve your credit scores.
How to Use Experian Boost
When you sign up for Experian Boost, you will receive a free credit report with an updated FICO® Score and an overview of your financial profile.
Here's how to sign up for Experian Boost:
Step 1: Allow Experian to connect to the bank account(s) you use to pay your utility and phone bills. Your information remains private.
Step 2: Verify the information and confirm you want the positive payment history added to your credit file.
Step 3: See your updated FICO® Score results instantly.
Download our free step-by-step guide on how to use Experian Boost.
Once you've boosted your FICO® Score and think you are ready for the next step, apply for an auto loan.
If your current credit scores will not qualify you for your dream car, try using Experian Boost. A higher credit score could be all that is standing in the way of your new set of wheels with a monthly payment you can afford.
*Credit score calculated based on FICO® Score 8 model. Your lender or insurer may use a different FICO® Score than FICO® Score 8, or another type of credit score altogether.
†Experian Boost: Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.
This article was originally published on May 31, 2019, and has been updated.
*Credit score calculated based on FICO® Score 8 model. Your lender or insurer may use a different FICO® Score than FICO® Score 8, or another type of credit score altogether. Learn more.