When it comes to auto-related bills, your credit score has mileage.
The type of car you drive is one of the key variables car insurance companies plug into their formulas to determine how much to charge you. Depending on the vehicle, the cost of car insurance can vary by hundreds of dollars a year for the same driver.
CreditKarma.com, known for providing consumers with free access to their credit reports and scores, has begun an auto-assistant dashboard aiming to help drivers manage their vehicle finances. Among other features, members can check their DMV profile, view details of their loan or lease, gauge the value of the car, and see their auto insurance score.
Better yet, they’ll get notifications if their credit score could make them eligible for better rates on their auto loan or insurance. Drivers don’t often capitalize on that information, said Rory Joyce, director of product for CreditKarma — a realization that spurred development of the tool.
“We started to notice that many of our members have auto loans that were effectively mispriced,” he said.
By the site’s estimates, 4.7 million users are overpaying on their auto loans. Over the life of the loans, that represents $10.1 billion in unnecessarily high interest payments.
“We found just bringing awareness of what the calculated APR is, versus what we think they deserve, is eye-opening,” Joyce said.
Auto refinancing tends to be an under-the-radar option. In a report from used-car marketplace Instamotor earlier this year, just 9.2% of buyers had tried it.
But drivers will need to dig into the details to see if savings would pan out, said Matt DeLorenzo, a managing editor for Kelley Blue Book. (At the time of the interview, he hadn’t used CreditKarma’s yet-to-launch tool.) Cars depreciate quickly, and you may not be able to refinance if you owe more than the car is currently worth.
Savings can also be deceptive. If you refinance into a new loan with a lower rate but a longer repayment term, you may pay even more in interest over the life of the loan, he said.
“You have to really look closely at the terms of the loan,” DeLorenzo said.
CreditKarma’s nudges to reshop auto insurance may be valuable, too. Nearly 4 in 10 consumers haven’t revisited their auto insurance to compare prices in at least three years, according to a NerdWallet report from earlier this year.
Estimated savings: $416 annually nationwide.
Another feature on the new CreditKarma auto dashboard will alert drivers to open recalls potentially affecting their vehicle. On average, only 70% of vehicles subject to a recall get the necessary repairs, according to the National Highway Traffic Safety Administration.
Drivers may miss mailed manufacturer notices or be unsure what action they need to take, said Patrice Vincent, manager of federal affairs for AAA. (At the time of the interview, she hadn’t used CreditKarma’s yet-to-launch tool.) AAA directs consumers to check for recalls at the government’s SaferCars.gov.
“Not knowing the tool, but getting good information in the hands of consumers when it involves their safety would be a step in the right direction,” she said.
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