Car loans remain more expensive than a year ago. But car owners with "good" credit in the 700 range can expect to take out more affordable loans.
FICO, the biggest credit scoring company, considers 670+ scores "good." If your score is in this range, you're not alone -- the average American's FICO® Score hovers around 700. Folks with good scores get decent rates on car loans.
Average interest rate for good credit
The average interest rate for good credit on new and used cars is about 8% and 8.5%, respectively, according to myFico data on interest rates by credit score. (Early last year, auto rates were much cheaper.)
Example: Say a customer with a 700 credit score wants to take out a $35,000, 60-month loan. They would pay about $710 monthly for a new car. Used car interest rates tend to be higher. So the same customer would pay about $864 per month for a used car.
Customers with lower scores can expect to pay more, between $710 and $1,100 monthly, on a $35,000 loan. That's why it's essential to have a high credit score. It can help you keep your monthly payments low, and you'll pay less in the long run.
Other perks of a 700 credit score
Good credit grants perks like mortgage loans and credit card approvals. A credit score of 700 qualifies potential homeowners for lower mortgage interest rates, which equates to cheaper home payments. And drivers might want to pair a snazzy new car with a credit card that makes travel more affordable. (The best gas credit cards offer 3% refunds or more at the pump.)
A 700 score may even lessen the cost of car insurance. The best car insurance for good credit offers discounts to drivers with high scores.
How to lower your monthly car payment
Cost too high? No worries -- you can lower your monthly premiums by extending your payback period, switching to a lease, or raising your credit score.
You can lower monthly payments by extending a standard 36-month payback period to 48 months or more. However, doing so will cost you; you'll pay more interest over the life of your loan. But it's worth considering if you need some wiggle room to cover non-car expenses.
Switching to a lease lowers your monthly payments, but buyers sacrifice car ownership. However, a lease could be worth considering if you expect to upgrade to a new vehicle frequently or anticipate having more disposable income when your lease ends.
It takes time to boost your credit score, but the juice is worth the squeeze. Typical strategies include making on-time monthly payments, keeping your monthly balance low, and avoiding opening new credit cards frequently. The best credit scores are in the 800+ range and can offer significant discounts on car loans.
How much can you afford to pay for a car?
The higher your income and the better your loan, the more you can afford to spend. A good rule of thumb is to keep car payments -- including gas and insurance -- below 15% of your monthly income (after taxes). The best auto loans offer reasonable rates, saving you thousands in interest fees. Consider the whole financial picture before purchasing a car to maximize savings.
Our picks for the best personal loans
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