Raise Your Credit Score & Reduce That Car Payment!

One of the most often overlooked areas that a higher credit score can save you money is on a car loan. The car buying process can wear down anyone and by the time you get to the financing part, you just want to get out of there. And guess what, the car dealers know that.

The car selling businesses make as much or many times more on the backend of a car purchase than they may make from the car sale. And the interest rate is one of the backend profit areas. Now I’m going to be talking about interest rates in this article but just a word to the wise, add on services and products are generally the highest cost and lowest value. Always get competitive prices on any thing offered at the dealership.

Now back to our interest rate information. One easy way to eliminate half the haggling on a car purchase is to get your financing lined up before you ever go to the car dealer. Banks and credit unions are a great source of low rates. Plus you just took one of the most time consuming parts of the buying process out of the deal.

There are of course a few exceptions. Dealers or manufacturers may offer low interest or maybe even no interest promotions to sell cars. This you can’t argue with, low or free is very good. But often times you have to meet some kind of criteria, like a high credit score, to receive these special offers. What type of savings can you get?

Well, a $20,000 loan at 9% (a very good rate) for 48 months will have a payment of $499. So if you get an interest free loan for the same amount and time the payment is $418. Not impressed? Well, look at the annual savings of $984 or how about the 48 month savings of $3936. That’s almost 4 thousand dollars in saving.

So as you can see, your credit score can really save you some serious money. Now there won’t always be the free interest special, so this is an exception and not the rule. But lets look at what a modest interest rate spread can save you.

Take the same $20,000 loan and if you get charged 14% verses 9% (a very common rate difference between a good credit score and a low credit score). At the 9% your payment would be $499 like above. But at a 14% rate your payment would be $548. That’s $600 a year or $2400 on the life of the loan. That’s also a good amount of savings.

Lets say you are reading this article right after you’ve already bought a car. You have a high interest rate now since you credit score was a little low. All is not lost. You can start to repair your credit today and depending on your circumstances, increase your score by up to 75 points in the next 30-60 days.

Once you get your score raised, you can refinance that loan at a better rate. Even if you drop that interest rate by 2-3 points it can mean a pretty good amount of money over the term of the loan. This is a good way to decrease your debt, and get your credit score up for the next time.

Low credit scores can be expensive, so anything you can do to increase your credit score is more money in your pocket. It’s not a difficult process but it does take a little time and effort. If you spend 10-15 hours working on improving your credit score in the next 30 days, and save over $2000 dollars in reduced payments that’s a good hourly rate. 

It’s also a good idea to monitor your credit reports during your repair project. Everyone should check his or her credit report each year. It’s now Free and won’t take much time as long as you stay on top of it. You can request one credit bureau at a time every 4 months and have a good idea of what’s been entered in the past 12 months and how you are progressing.

Don’t pay for something that you can get for FREE. Go to the Federal Trade Commission’s site here to get the full details of getting your free credit reports:

http://www.ftc.gov/bcp/conline/pubs/credit/freereports.htm