Low Credit Scores and Inexperience are Costing the First Time Car Buyer
The problem many first time car buyers face is a lack of car buying power. In most scenarios, the first time buyer is younger. And because they have not had the opportunity to establish their credit history, they are at the mercy of what the dealer or lender has to offer – which in most cases is long-term loans and astronomically high interest rates.
If you are skeptical by this analysis, just take a look at the results of a recent survey commissioned by Capital One Auto Finance. The survey discovered that when the first time car buyer finances their car, they end up spending more than the average consumer. This is due to a number of factors, including:
- Poor Credit Scores
- Higher Interest Rates
- Loan Terms Longer than 60 months
- General Inexperience
- Lack of Knowledge about Loan Options
Of course the results from the survey should come as no surprise: According to FICO, your credit history (or lack thereof) accounts for 15% of your total credit score – meaning that car buyers who have no credit history will have their overall score negatively affected. Then, when it comes time to obtain a loan, your chance at a low interest rate disappears, driving the overall price of the loan up.
The correlation between an interest rate and how much you pay:
- Credit Rating of 680 or Better: For instance a person with a good credit rating (680 or better) can often get an interest rate of 7 percent or less. On a four-year, $20,000 dollar loan this translates into paying $2988 in interest.
- Credit Rating Below 680: Unfortunately, a credit rating of less than 680 can translate into an interest rate of 20 percent, or more. So, on that same $20,000 dollar loan, the interest rate will wind up costing you $9,213.
With the above examples showing a difference of more than $6,000, it’s easy to see how a first time car buyer with no credit history and a poor credit rating can wind up paying more than the average consumer.
A poor credit score does not mean you have to sacrifice ownership or quality
The good news is that lack of credit history or a poor credit rating does not have to affect your ability to buy a quality car. While a high interest rate on a new car can cost you thousands of dollars, used cars can be just as reliable and offer any number of financial advantages.
In fact, UsedCars.com offers access to a wide assortment of used cars
priced under $5,000. And because the interest rate on these smaller loans is far less than that on a new car, you will save thousands of dollars in the process.
Better yet, because of engineering advancements over the last decade, most used cars on today’s market are in great condition. Of course you will want to have the car thoroughly inspected before you make any final decisions. However, with access to thousands of used cars from dealers across the United States, UsedCars.com is here to help you find the one that will meet your needs.
