If you have a 745 credit score you would fall in tier 1 or A+ credit category and qualify for the best rates. However, if you’re unaware of your credit score the dealer may tell you your score was only 725, which is still very good but drops you down into a lower tier and they can charge you a higher interest rate.
The car dealership or finance institution will use your credit score to determine what kind of interest rate they will charge you for the loan. They may say you qualify for 7% when you really qualify for 5%.
Now 7% sounds really good but you’re still leaving money on the table and paying 2% more than you need be. This is just one of the many ways car dealerships make excessive money off you when you finance a vehicle with them. What will a 2% bump in interest rate cost you over the life of your car loan? Let me show you.
Total cost of a 2% bump in rate on a 60 month car loan. |
$32,086.00 | = | Average new car price in 2018 |
$635.00 | = | 60 Month Payment at 7% APR |
$606.00 | = | 60 Month Payment at 5% APR |
$29.00 | = | Difference in payments |
$1,740.00 | = | Payment difference x 60 months |
A slick-talking finance manager closing you at a 2% higher interest rate than what you really qualify for will make his day and cost you over $1,700 over the life of the loan. That breaks down to about $28.00 added to your monthly payment in this scenario. I’m here to tell you that this happens all day, every day, to unsuspecting customers.
In the above example, I didn’t include tax, title, license, or any misc. fees. If you were to roll TT&L into your loan, you’ll pay even more. Paying interest on tax, title and license is not very good money management. Save yourself some money, review your credit report and scores, learn why it’s important to put cash down when buying a car, and never roll your TT&L into your car loan.