Buying a Car? Here’s How Much a Bad Credit Score Can Cost You
Written by
Chris Adam
Edited by
Daria Uhlig
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You might want to check your credit score before going to the car dealership because a bad score could cost you more than you realize — as much as $10,000, according to USA Today.
The good news is that you can get a car loan with a credit score in the low 600s, which is how many lenders define a “bad” score, or even less, according to TransUnion. “But the loan will probably come with a sky-high interest rate, dramatically increasing the full cost of the car,” USA Today noted.
The spreads in interest rates on car loans come from complicated risk-based calculations. While financing standards vary from one lender to the next, they all have one thing in common: They consider you a bigger risk for loan default if you have a lower credit score.
How To Get a Better Rate With a Low Credit Score
If you have a low credit score and want to buy a car, get ready to pay more. But there are some things you can do to improve your chances of getting a lower rate or better terms:
- Save up longer so you can put more money down. You’ll reduce the amount you need to borrow, and investing your own money in the car will make you a less risky borrower.
- Ask a friend or family member with good credit to co-sign the loan with you.
- Avoid long loan terms. Lenders offer terms up to 84 months. This can be good and bad — good because long terms keep payments lower, and bad because longer loans are risker to lenders, so the lenders charge higher rates.
Here’s one more tip: Shop around for financing. Look beyond the dealership to see what terms and rates you can find.
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