The High Cost of a 685 Credit Score (It’s Shocking!)

Did you know that a 685 credit score could easily cost you $1,953 MORE on your next car loan? Ouch, that hurts! Let’s take a closer look…

Imagine this:

You’re in the market for a new car. You did your research, and have decided that a brand new Toyota Camry SE is what you want.

I’ll be honest, it’s a solid choice. Toyota has great reliability, resale value, etc. Not to mention the new Camry is a sweet looking car with great MPG’s.

Let’s say you have found that Toyota Camry SE’s cost around $25,000-$27,000, depending on options and features. You decide on the $27,000 version. You have a couple grand to put down, and plan to borrow the other $25,000 with a 48 month auto loan.

So this is when you need to run the numbers and see what your payment might look like based on your credit score and the amount you plan to borrow.

There’s a really great tool I like to use for this purpose – Loan Savings Calculator. It’s super useful for finding out how much bad credit can cost, or how much good credit can save.

Loan Calculator Results

Here are the loan calculator results for a $25,000 auto loan, with a 48 month repayment plan.

720+ Credit Score:

  • Total Monthly Payment: $567
  • APR: 4.24%
  • Total Interest Paid: $2,224

If you had a 720+ credit score, this loan would cost you a total of $2,224 in interest. That’s an average of $41/month in interest alone.

685 Credit Score:

  • Total Monthly Payment: $608
  • APR: 7.79%
  • Total Interest Paid: $4,177

With a 685 credit score, that same loan would cost you $4,177 in total interest over 4 years. That’s an average of $87/month in interest alone.

Wait a minute! That’s $1,953 MORE!

Yep, that means by having a credit score of 685 instead of 720+, it would cost you an ADDITIONAL $1,953 over the 4 year loan. That’s a lot of money! See the screenshot below:

So basically, just because you have a 685 credit score instead of a 720+, you’re going to pay nearly DOUBLE the total interest on this loan.

You may think to yourself, “Well it’s only $41/month more on average”. But it adds up quick.

I plugged these numbers into BankRate’s Amortization Loan Calculator and found that during the first year of this example loan, your 685 credit score would cost you over $800 MORE in pure interest ($1,878.72 as compared to $1,014.64).

By the end of the second year, it would cost over $1,300 more ($3,144.77 vs. $1,771.86). So as you can see, even if you only keep the car for 2 years, you’ve already paid most of the total ADDITIONAL interest on the loan.

It just doesn’t seem fair, does it?

Nope, it doesn’t. But it’s the game we have to play, and it literally pays to be good at it.

Of course it could cost more or less depending on the amount borrowed, and what interest rates you end up with. But this is a great real world example of how much money you can save by having a credit score above 720.

What could you do with an extra $1,953?

I don’t know about you, but I would say $1,953 is a significant amount of money. What would do with the extra dough? Save it? Spend it on a quick vacation?

Whatever you would use it for, it’s definitely worth saving, wouldn’t you agree?

Just the tip of the iceberg

This is just one example of how much more it costs to have a credit score below 720. There are so many other things it can affect as well.

Bad credit can lead to:

  • Higher interest rates on loans (auto loans, personal loans, mortgages etc.)
  • Higher auto insurance rates (insurers often figure bad credit equals bad driving)
  • Getting turned down for that apartment (landlords commonly check credit)
  • Getting passed over for the job you want (employers often check credit before hiring)

The importance of a 720+ credit score

This example shows the importance of keeping your credit score healthy. It could literally cost you thousands of dollars (or maybe even a job or an apartment) if you don’t.

The magic number is typically 720+. That’s where the big savings starts.

Often times if you realize your credit isn’t quite where it needs to be to get the best rates, there are simple and quick things you can do to quickly boost it before you apply for a loan.

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