Car Buyers: Knowing Your Credit Score Is Not Enough

September 27, 2010

One of the standard recommendations that the more consumer-oriented automotive websites make is for car buyers to know their credit score prior to walking into a car dealership. The reasoning behind this advice is that knowing your score will help stop dealers from padding the interest rate on your car loan. When that happens, it increases the dealership’s profit, but is a direct expense to the buyer.

I counsel my readers differently. Knowing your credit score may be useful under some conditions, but it won’t help unless you know what interest rate you actually qualify for. That’s why I recommend that car buyers take the extra step of actually getting pre-approved on a car loan at their bank, credit union, or online lender before looking at cars in person. In this way they know exactly what rate they qualify for. If a dealer quotes them something higher, choose the financing that’s already set up. If the dealer can beat the pre-approved rate, they just saved even more money.

Why It Matters

Let’s say I qualify for an interest rate of 4.99 percent on my car loan. However, because I didn’t seek pre-approval at another financial institution, I didn’t know the dealership was adding to that rate when they calculated my car loan at 6.99 percent. The extra 2 points will increase my monthly payment from $419.78 to $440.47. Over the 60 month term of the loan, this will add an additional $1,241.40 to the cost of the loan. This is added profit for the dealer that I could have kept in my pocket. 

Know More Than Your Credit Score

Knowing just your credit score can actually hurt you when you walk into a dealership. You need to know the interest rate you qualify for with that credit score. Without this crucial information you can be at the mercy of the salesperson working your car deal. That’s usually not a good thing because in this age of Internet pricing, many dealers need to make up the profit they lose when they sell new cars for an ever dwindling selling price. Depending on your state’s laws and regulations, they do this by adding a point or two or more to the interest rate on your car loan. This added cost comes directly out of your pocket.


Knowing your credit score is not enough. You need to know the actual interest rate you qualify for before talking financing options with a dealer. Most buyers do this by getting pre-approved on their car loan somewhere other than the automotive dealership where they hope to buy the car.

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