Credit scores touch just about every aspect of our lives at one point or another. For many, the impact of a low credit score is most keenly felt when applying for credit on a major purchase, such as a home mortgage or auto loan.
Oftentimes those with poor credit learn to live without credit cards and other “nice to haves,” but when it comes to the “must-have” necessities of life, homes and cars top the list. But consider this: auto interest rates continue to rise for borrowers with poor credit. The average auto loan interest rate for those with a credit score of 600 or less is 15 percent and up for a 40-month loan.
Furthermore, the Federal Reserve raised interest rates a quarter of a percent in December, marking its third rate hike in 2017. This means interest rates for those with poor credit will continue to creep even higher, severely limiting the options of the approximately 68 million Americans, which, according to VantageScore, have credit scores below 601.
Subprime rates on the rise
Subprime auto loan rates have skyrocketed compared to where they were just a year ago. The average subprime rate of 5.91 early in 2017 has jumped to 16.84 today, according to a recent report from Union-Bulletin.
This has put car ownership out of reach for many Americans. For those who do secure an auto loan, they are often relegated to used car options. Furthermore, subprime loan interest rates often result in payments that are so high that loans become delinquent or go into default. This becomes a vicious cycle and only adds to consumers’ credit woes.
While credit reports and scores can become an afterthought in the hustle and bustle of daily life, it’s important to consider the things that impact your credit score and manage them before you begin shopping for an auto loan. It can take some time to clean up your credit, but doing so allows you to secure a lower interest rate, saving you a lot of money over the life of your auto loan. Raising your credit score by just 20 or 30 points can cut the auto loan interest rate for which you’ll qualify almost in half.
For those with good credit — meaning scores in the 690 and higher range, interest rate hikes mean far less significant hikes in car payments. The Fed’s latest hike of a quarter percent for someone with a healthy credit score would result in an average $4 increase in payment each month. When it comes to securing an auto loan, it clearly pays to make sure your credit is up to snuff.
If a car purchase is in your future and you’d like to start cleaning up your credit today, CreditRepair.com can help. We offer a free consultation, credit report review and credit score consultation.
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