Poor credit adds to cost of owning a vehicle
Car owners with poor credit can pay hundreds — if not thousands — more to drive than those with good credit. This plays out in two important ways: higher rates on car loans and, in most states, higher insurance premiums. In fact, having bad credit can raise your insurance quote even higher than if you’d had an accident.
To see how much poor credit can cost car owners, personal finance website NerdWallet looked at auto loan terms and insurance quotes for drivers in different credit tiers.
Credit, car loans
Drivers with blemished credit often choose a cheaper car than they could otherwise afford. However, they’ll still pay more to own it — especially if they finance the purchase. Good credit is generally considered 690 to 719, while bad credit is below 630. In a slightly different system, prime credit is 661 to 780 and subprime credit is 501 to 600.
For used car loans in the last quarter of 2017, prime credit buyers received an average rate of 5.48 percent, according to credit reporting agency Experian. The average rate was much higher, 16.27 percent, for subprime borrowers.
Say a buyer purchases a used car with a loan of $21,000 — just under the average amount financed on used car purchases, according to Edmunds. Using the average rates above, here’s about how much each borrower would pay on a 48-month loan: prime: $488 per month and $2,433 in total interest; subprime: $598 per month and $7,706 in total interest
In this example, the cost of poor credit is $110 per month, and $5,273 over the life of the 48-month loan.
Longer loan trap
To get a lower monthly payment, buyers increasingly accept loans with longer terms — about 42 percent take out loans for six years or more, according to the Consumer Financial Protection Bureau.
While there’s merit in making sure bills fit your budget, this dramatically increases the cost of a car.
With the loan extended to 72 months, the total cost of poor credit becomes $8,335, or $116 per month over six years.
Different score
The credit scores lenders use to determine loan terms are not the same score auto insurers use to set your premium.
A credit-based insurance score is used to predict your likelihood of filing a claim in the next few years, says Lamont Boyd, insurance industry director of scores and analytics at FICO. Insurers can use this and other scoring models to help set rates in all states except California, Hawaii and Massachusetts, where the practice is banned.
We also compared quotes for drivers with good credit and one accident versus similar drivers with poor credit and no accidents, and found poor-credit quotes were often higher. In all but two states, drivers can find quotes at least $500 cheaper per year for good credit and one accident compared with poor credit and no accidents.
Avoid paying up
To get the best rate possible, check your credit scores and get preapproved for an auto loan. You can still get financed on the spot, but “now you have this pretty strong negotiating chip to help you get an even better rate from the dealer,” says Delvin Davis, senior research analyst at the Center for Responsible Lending.
The emergence of Netflix and other streaming services that offer subscribers a commercial-free TV viewing experience means a generation could grow up without ever hearing the phrase: “we’ll be right back after a word from our sponsor.”
The broadcast and cable networks that took in $19.7 billion for advanced sales of commercial time last year don’t want to see that happen. That’s why Fox and NBC plan to reduce the amount of commercial time in their shows starting next fall. Both are looking to offer advertisers the chance to run commercials in shorter breaks during which they might reach a more attentive audience. Other media companies have begun similar initiatives to reduce the number of commercials on their cable channels.
But doing so comes with a risk. Airing fewer commercials could mean less revenue for the networks, unless they can convince advertisers it’s worth it to pay more to have their spots running in a less-cluttered program. The topic is being debated ahead of the upfront market, where most of the advance ad time for the 2018-19 TV season is sold.
Fewer commercials could help reverse that trend and advertisers would welcome a less crowded environment for their messages.
“I absolutely think a shorter commercial pod is better for the advertiser,” said David Campanelli, senior vice president and managing director of video investment for the ad-buying firm Horizon Media. “How much better will it be versus how much more they charge for it? That’s a big outstanding question.”
Networks have reconfigured their commercial breaks to deal with changing technology before.
Once remote controls were used in most homes by the early 1990s, the networks eliminated the breaks between programs because they found that was when viewers most often flipped channels.
When digital video recorders started reaching critical mass in 2008 and cut into prime-time viewing, Fox reduced the number of spots in several of its new series to encourage viewers to sample them.
Still, those changes occurred when broadcast and cable remained the only places for viewers to go for original programming. That’s no longer the case, with the explosion of new programming across multiple platforms. Streaming video is the greatest challenge yet to ad-supported television — and it’s not just from Netflix.
Millions of people are watching their favorite network shows on a streaming device or through a video-on-demand service within the week after they air for the first time on television.
Those viewers are seeing commercials too, just fewer of them, and it’s conditioning them to expect fewer.
Broadcast networks’ hourlong prime-time shows carried an average of 11 minutes and 32 seconds of national ads in the fourth quarter of 2017, about the same as four years earlier, according to media strategy firm Magna Global. Clutter is seen as a larger problem on cable networks, some of which carry as much as 18 minutes of national advertising per hour. That has led Turner, Viacom and A&E to announce they are cutting the ad load on some channels by as much as 50 percent.
The networks are collecting more revenue from digital advertising. But their linear TV channels still command higher ad prices because they can potentially reach nearly every home in the country and have a long legacy of effectiveness.
Nonetheless, television’s historic advantage is threatened by younger viewers who have adapted to watching on digital devices.
“Obviously part of it is people are choosing to watch on their own schedule,” said Mark Marshall, executive vice president for entertainment advertising sales at NBCUniversal. “But the other part of it is that it’s just a better environment with a lighter ad load. We had to be honest with ourselves and say, ‘knowing that, how do we figure out a way to make TV more like digital?’”