Cars, Trucks, and Credit Scores

Popular Vehicles • Auto Loan Rates • Credit Scores Matter

Last week a client called me and said her car had been stolen right out of her driveway. Pretty crazy. Now she needs a new one and wanted to run some numbers. We discussed new cars vs. used cars, leasing vs. buying, luxury vs. practical, and auto loan interest rates.

It was a fun conversation, well probably more fun for me than her since my car didn’t get stolen. Cars are often most people’s second-largest fixed expense behind housing. Buying a new car is an important decision that will impact your financial life for years. You have to consider the ongoing costs of gas and now with EVs electricity, car insurance, and maintenance. After the call, this led me down a little rabbit hole of research and some interesting charts.

First, I wanted to know what the top-selling cars were in America. When I saw the results sorted by state, it reminded me of the map you see on election night. What jumped out was that in almost every Republican state, the top-selling vehicle was an American-made pickup truck, except for North Carolina, where the Toyota RAV4 took the crown, and Ohio, where the Honda CR-V was number one.

Auto Loan Rates

Next, I wanted to know the difference in auto-loan interest rates for new cars versus used cars.

New cars have less risk because they don’t have any wear and tear yet, haven’t been in any accidents, and the resale values are better. Thus, interest rates on loans for new cars are about 4% less than interest rates on used cars.

What stuck out to me on the interest rate chart was that auto loan rates in the Southern States were higher than in the Northern States. Why would that be? It might have something to do with credit scores. The Southern States have the lowest average credit scores in the country.

In the eyes of the banks, the lower the credit scores, the more risks there are that those auto loans won’t get paid back. And banks charge extra for that risk.

Buying a new car is one of those reminders of how important it is to have your financial life in order. Your credit score will impact the interest rate on your loan. Your interest rate will impact your monthly payments. And your monthly payments will take resources away from other areas of your day-to-day life. Like most things in personal finance, the final decision will require some tradeoffs, and the more prepared you are, the easier the process will be.

Thanks for reading and have a great week!

Do you need help getting control of your finances and creating a financial plan, reviewing your 401K, or simply want a second opinion to make sure you’re on the right track for retirement and beyond, please reach out to [email protected]!