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The High Cost of Low Credit Scores

Car Loans

Borrowers with shaky credit can qualify for a car loan, but they’ll pay a steep price. Roughly 44% of car loans originated during the first quarter of 2012 were given to subprime consumers, meaning those with scores lower than 680 (based on the so-called PLUS range of 330 to 830), according to the latest report by Experian. That’s up nearly 6% from a year prior.

Interest rates on car loans vary significantly based on the borrower’s score. The best borrowers who have at least a 740 score pay 3.2% interest on average on new car loans and borrowers with 680 to 739 scores pay 4.5%, according to Experian. Borrowers with lower scores could pay anywhere from 6.5% and 12.9% on average.

The difference adds up: On a $10,000 five-year (the average term) new car loan at a 3.2% rate, monthly payments will be about $181 – with some $860 in interest paid over the life of the loan. At 12.9%, payments are around $227 per month, or $3,620 in interest over five years – an extra $2,760 compared to the borrower with pristine credit.



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