Forgetting to check your credit report is one of the easiest and most costly mistakes you can make before shopping for a new auto loan or car refinance. Studies show that about 70 percent of consumer credit reports have errors on them. And when it comes to refinancing an auto loan, those errors can cost you big time. How much? Read on to find out how a few points off your credit score affects the overall cost of your car loan.
According to CreditReport.com, an incorrect report of a nonpayment on a debt or loan is one of the most common errors to appear on a credit report. Such a mistake can be devastating for your good credit score. For example, a 30-day late missed mortgage payment could dock you up to 80 points on your credit score, depending on how the other factors of your credit history stack up.
According to FICO data reported by CreditCards.com, a 30-day late payment for a borrower with a credit score of 680 could mean a decrease in your credit score between 60 and 80 points. In terms of getting an auto loan, those 80 points can mean the difference being classified as a “fair credit status” borrower or reaching the “good credit status” range.
There is a dramatic difference in APRs and monthly payments for car loan quotes with a plus/minus difference in credit scores. (Note: These figures reflect results of a live auction conducted at the time this article was written and are for illustration purpose only.) If you were financing a $22,000 auto loan on a 2011 Hyundai with a credit score of 665 (a “good” credit score), you’d get an APR of about 5.40% for a monthly payment of $419 for 60 months and a total cost of $25,140. But, if an error on your credit report caused an artificial drop in your credit score by 80 points, bringing your score to 585 (i.e. a “low” credit score), you’ d be looking at an APR of 18.40% over 60 months and a monthly payment of $563 for a total cost of$33,780.
Or, let’s say that you corrected an error on your credit report that boosted your credit score up 80 points, bringing you to 745, which is squarely in the “excellent” credit status range. Your APR would be 3.65%, which adds up to 60 monthly payments of $402 for a total auto loan cost of $24,120.
With those numbers in mind, it’s clear that fixing a single error on your credit report could save you significant money. The difference between the an auto loan for a good credit score vs. a low credit score is huge, tallying up to about 13 full percentage points on the APR, totaling roughly $8,640 in final payments. So, before you begin shopping for auto loans or a car refinance, take the initiative to investigate and verify the contents of your credit report. It could save you thousands of dollars.