It’s written all over our blog that a good credit score will give you a lower interest rate for anything. But to really hit this point home, here’s an example on car loans: why you could be paying a lot less for your car if you had better credit.
The car in question is the Jeep Wrangler. It’s an all-terrain SUV for those who love the great outdoors. It’s priced at $22,676.
With a credit score of 594 from TransUnion and Experian, and 598 from Equifax, Jack is in the poor range. For a 73-month auto loan (6 years and 1 month), he is introduced a 23% APR. If we do the math, his monthly payments are $578.
The total he will be paying is $42,194; the interest, $19,518.
With a score of 765 from all three bureaus, Jill is in the excellent range. For the same auto loan, she is introduced to a 5% APR. Her monthly payments are $360.
The total she will be paying is in a little over six years is $26,280. The interest is just $3,604.
For the same Jeep Wrangler, Jack paid $15,914 more than Jill because he had a low credit score. The interest he paid was just a few thousands shy of the price of the car itself.
This is why it’s so important to make sure your credit score is in tiptop condition before you take out a big loan. But if you’ve already taken out a loan with an unfavorable interest rate, make sure to improve your score and refinance the loan with better terms—before your interest can afford to buy itself another car.