Bad Credit or a Bad Driver: Which of the Two Causes an Inflated Car Cost?

Paul Hadley
12/10/201810th December, 2018
Filed under Car Topics

Credit is an important factor when it comes to your dream car. If you have good credit, you can rest easy because you can get the best rates from the dealer. Which means the car will cost you less? On the other hand, poor or bad credit will see you dig deeper into your pocket for your dream car.

There’re two ways poor credit will inflate the cost of your car. First off are the sky-high interest rates. And then there are the high premiums you’ll have to pay for the car. These two factors combined can see you pay more for the car you want.

In fact, if you have poor credit, you can expect to have higher insurance quotes than a person with bad credit and an accident in their records.

This article dives into this matter to find out just how much impact poor credit does have on your wallet when it comes to buying a car.

Car Loans and Credit

Drivers with stains in their credit report find it difficult to own cars. For that reason, many of them opt for cheaper cars and even then, they have to dig deeper to buy the car. A good credit score falls between 690 and 719, while poor credit is anything below 630. A different system from the usual involves a prime credit which ranges from 661 to 780 while subprime credit falls between 501 and 600.

As 2017 drew to a close, Experian reported that prime credit buyers enjoyed an interest rate of about 5.48%, while subprime customers had to deal with high-interest rates of 16.27%. With these interest rates, if a buyer purchased a used car using a $21,000 loan, according to Edmunds, the borrower will make the following payments for 48 months:

$488 every month, which translates to $2,433 in interests for prime borrowers.

$598 every month, which translates to $7,706 in interests for subprime borrowers.

With this example, it will cost you $110 more every month if you have poor credit and a whopping $5,273 in interest.

The Inevitable Longer Repayment Period

Since most borrowers with poor credit scores cannot afford high monthly installments, the only alternative is to opt for low monthly installments. As a result, they are forced to pay the loan off over a longer period of time. In fact, according to the CFPB, around 42% of borrowers take out realisticloans with a repayment period of 6 years and more.

Although this move puts less stress on your finances, the overall cost of your car will rise. For example, if the loan period extends to 72 months, a borrower with poor credit will have to part with $8,335 in interest.


You’ll be surprised to find out that insurers use a different credit score compared to lenders when it comes to auto loans.

The insurance score used by insurers seeks to find out the likelihood or probability of you filing a claim in the foreseeable future. A number of insurers use this style of scoring in other states apart from Massachusetts, Hawaii, and California where this practice is prohibited.

NerdWallet made a comparison of quotes for drivers with either poor or good credit and clean records as sent out by insurers. From 10 ZIP codes, the website then came up with an average of the rates and ranked them according to the state.

It also made a comparison of various quotes for drivers with one accident and good credit versus drivers with no accidents, but with poor credit. They found out that the drivers with poor credit had higher quotes. Apart from two states, drivers can get cheaper quotes by as much as $500 a year with one accident and good credit compared to no accidents and poor credit.

How the Cost of Insurance Varies

If you are a driver in Michigan with poor credit score, then prepare to pay high insurance rates. Compare that to a driver with the same driving record and a good credit:  the former will pay at least $464 more every month. Kentucky comes in second with $185 more every month

On the other hand, North Carolina offers favorable rates for drivers with poor credit scores, which is about $20 more every month. Iowa has the second cheapest rates for drivers with poor credit at $37 more.

Don’t Pay Up

Before heading to the junkyard to sell your junk car, it’s important to shop around for favorable deals. This includes analyzing your credit score for preapproval. With preapproval, you probably can talk the dealer into a lower rate and better loan terms.

You can still save even if you have bad credit by checking out insurance quotes. Furthermore, you can supercharge your insurance score and credit using the following steps:

  •    Make timely bill payments
  •    Make sure your credit utilization status below 30%


The debate over the good driver and his bad credit continues. It’s a real dilemma when it comes to the cost of your car. The same question also determines the type of insurance rates you’ll get.  However, even with a stellar driving record, but bad credit, you can be certain that you’ll pay substantially higher rates than a driver with the same records, but with good credit.

To save your pocket from further dents, it’s important to conduct your research regarding the best deals around.

author avatar Written by Paul Hadley

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