What Credit Score Is Going to Help You Get a Car Loan? (2024)

If you're trying to buy a new or used vehicle, you may want to finance it instead of paying the full price upfront. It can be confusing to know how your financial information affects your loan details. Lenders use credit scores, or FICO scores, to determine what kind of car loan they can give you.

Credit scores are numbers based on credit scoring models that auto lenders use during the financing process. This number helps them assess your financial situation and determine how to structure your auto loan. Your FICO score can vary depending on various factors.

A bad credit score can affect auto loans. It can increase your interest rates and make the loan more expensive. Having a lower credit score can also make it more difficult to secure financing.

Curious What Car Loan You Are Eligible For With Your Credit Score? Compare Rates Right Here:

Credit scores are often big indicators of what kind of car loan you can secure. It can be helpful to better understand what a credit score is and what score you need to get a car loan. Though having a lower credit score can make it more difficult to find the auto loan that works for you, you do have options.

There are steps you can take to improve your borrowing experience. There are also steps you can take to improve your credit score prior to financing a vehicle if you have the time. So what credit score do you need for a car loan? Here's everything you need to know about how your credit score plays into auto lending.

How Do Lenders Use Credit Scores?

Lenders use your credit score as one tool to determine your credit risk. The score helps them learn more about your financial situation and whether you're likely to default on the car loan. Credit bureaus use information about your current credit accounts and credit card accounts to generate your credit score.

Credit scores are numbers between 300 and 850 that represent your credit profile. Though your credit score is an important part of the lending process, it isn't all the lender considers. For example, they may also consider your FICO auto score, which is a number focused on your auto loan risk.

Minimum Credit Score for Buying a Car

The minimum credit scores that are best for purchasing a vehicle can vary depending on the lender you choose. There's no universal minimum credit score. Each financial institution has different qualifications for minimum credit scores when offering auto loans. A new lender may consider your debt-to-income ratio.

The credit union you bank with may consider how long you've been a member. When purchasing a car, the minimum credit score requirement may be around 500. Those with average credit scores lower than 500 can still get financing, but they may have higher rates.

Most used auto loans go to borrowers with minimum credit scores of at least 675. For new auto loans, most borrowers have scores of around 730. The minimum credit score needed for a new car may be around 600, but those with excellent credit often get lower rates and lower monthly payments.

Improving Your Credit Can Lower Costs

Lower credit scores may result in less-than-favorable loan terms for the car you want to buy. Having a car loan with a high interest rate can make it more difficult to pay it off. If you're already struggling with low credit, adding a car loan with high rates may not be helpful.

If you can, consider postponing your car purchase. This can give you more time to improve your credit score. Postponing your purchase can also help you time the market and buy when dealerships have high inventory.

A car loan with high interest rates can make a big difference in your monthly payment. Taking some time to improve your credit can also help you save money in the long term. Lower rates can reduce the total cost of the vehicle by thousands of dollars.

How to Improve Your Credit before Buying

If you can, take time to improve your credit score before purchasing a new vehicle. Even improving your credit score by 50 to 100 points can help to improve your lending options. These are some steps you can take to improve your FICO score before purchasing a car.

Assess Your Report

To improve your credit score, start by assessing your credit report and disputing errors. Your report is the document that contains all your credit information, and sometimes major credit bureaus can make mistakes. They may add the wrong information, which can lower your score, so it's important to dispute any errors you find when assessing your report. You can go to AnnualCreditReport.com for a free annual credit report from each of the three credit reporting agencies: Equifax, Experian, and TransUnion.

Fix Your Credit Mix

Credit mix refers to the different types of credit you have. If your report isn't diverse enough, it can lower your score. Consider taking out different types of credit, like personal loans, to improve your credit mix.

Pay Your Bills on Time

Focus on paying all your bills on time to get a good credit score. Missed payments can lower your score, so one way you can help to improve your score is by making on-time payments. Consider creating a reminder system or setting your payments to automatically come out so you don't forget.

Increase Your Credit Limits

Consider calling your current lenders and asking them to increase your limits. The three major credit bureaus consider what percentage of credit you're using as part of your score calculation. This means increasing your credit limits can lower that percentage even if you don't pay your balances down, which can help to improve your credit score.

Lower Your Balances

Finally, one of the best things you can do to improve your credit is to pay down your balances. Having high balances on your credit accounts can lower your score. The goal is to have your total credit utilization down under 30 percent, as this can greatly help to improve credit scores. Consider taking out a personal loan to reduce your credit card utilization.

How to Purchase a Car with Bad Credit

Cars are essential for many people when it comes to getting to work, transporting kids, and getting basic life essentials. It's understandable that you may need a vehicle if your current vehicle stops working, even if your FICO credit score may increase the interest rates.

For example, leasing a used vehicle may be a better option, as it may give you more time to improve your low credit score. Raising your credit score or FICO auto score may help you lower your rates. According to an automotive finance market report from Experian, a car buyer with a credit score between 501 and 600 may receive an interest rate as high as 17.78 percent.

An average interest rate for an auto loan may be around 5 percent, and the difference between these two interest rates can mean thousands of dollars over the life of the loan. Here's how to buy a car with poor credit.

Save for a Down Payment

Having money for a down payment can make the financing process simpler, as the lender takes on less risk when they don't give you a loan for the full value of the vehicle. Some lenders may offer you lower rates if they see that you have the money for a down payment. If you have poor credit, some lenders may require that you have a down payment before they'll offer you an auto loan.

Consider Your Loan Details

Determine the conditions of the loan before agreeing to one to ensure you're protecting yourself financially. For example, some lenders may offer you car loans with long terms, but this can mean you spend far more in interest over the course of the loan. Make a list of the conditions for the auto loan you want, including its interest rate and duration.

Set a Loan Budget

Also consider what you can afford in a car, as it can be tempting to spend a little more to get something nicer. Set a budget for your car shopping and be sure not to take out a loan any higher than the price of the vehicle or a monthly payment amount more that you can afford. After determining the car loan rates you want, you can begin contacting financial institutions to learn more about how credit scores affect their car loans.

Where to Get an Auto Loan

One common mistake people make when getting an auto loan with poor credit is only contacting one lender to learn about their options. Speaking with multiple lenders can help you get the car loan that offers you the best car loan rates.

Car Dealerships

When you visit a car dealership to purchase a car, they can use their connections to many financing institutions to help you find a lender. Some dealerships even have experts who work with buyers with low credit.

Online Lenders

There are many online lenders who specialize in auto loans for those with low credit. You can apply for prequalification with these lenders to learn about the conditions for the car loans you can get.

Credit Unions or Banks

Consider making an appointment with the lending department at your current financial institution to learn more about the car loans they can offer you. Credit unions may consider your relationship with the organization and help you get a loan.

Pay-Here Dealerships

This kind of car dealership may be the last option for those wanting a car. Buy-here, pay-here dealerships often offer interest rates that are much higher and aren't usually the best option. However, if you need a car, have low or no credit history and have been declined by the other lending options, this might be your only choice.

Frequently Asked Car Loan Questions

Learning more about how credit scores affect car buying can help you navigate the process. These are the answers to some commonly asked questions about car buying.

What Factors Determine My Credit Score?

Major credit bureaus are companies that use popular credit scoring models to generate credit scores. These are some factors organizations may consider when determining your FICO score:

  • Length of credit history
  • Current revolving balances
  • Monthly payment history

What If I Have No Credit? Can I Buy a Car?

You can buy a car if you have no credit score. One way to purchase a car with no FICO score is to avoid financing the purchase, and instead, use money you have saved. Of course, this isn't always an option for buyers, and there are ways to get financing for a car if you don't have a credit history.

Lenders prefer buyers with a strong credit and payment history. This can make your options limited when it comes to the loans you can get. There are steps you can take to get a car loan if you have no credit. You can also bring evidence of a consistent income when speaking with the lender.

Do Lenders Change Interests Rates Based on the Car?

Lenders may change interest rates based on the car you buy. The biggest indicator of interest rates is the car's age. A new car loan may have higher interest rates than a car loan.

Lenders aren't likely to change the interest rate based on the make and model of the vehicle itself. Be sure to speak with the lending institution to learn more about lending options. Each bank and credit union can vary in how they form their loan details according to the car.

Will Using a Cosigner Improve My Loan?

Using a cosigner can improve your car loan. A cosigner is someone who takes some responsibility for your loan by signing their name to it. Asking someone you trust to cosign on your loan can help you improve the terms of your loan. Consider asking those with higher credit scores to help reduce your lending risk. Having a cosigner can lower your rates. A good cosigner can convince lenders to offer you a loan.

What Credit Score Is Going to Help You Get a Car Loan? (1)

Jim Slavik

Finance Editor

Jim Slavik is a financial services expert with 30 years of strategic and operational experience including leading underwriting, loan administration, customer service and collections. He has held C-suite credit operations roles for Fortune 100 and private equity companies for credit cards, personal loans, lease-to-own, auto loans, mortgages, and insurance for prime and sub-prime borrowers.

Currently Mr. Slavik is an independent financial services consultant for private equity firms and a contributor for expert networks such as GLG, Guidepoint, and Level company amongst others.

What Credit Score Is Going to Help You Get a Car Loan? (2024)

FAQs

What Credit Score Is Going to Help You Get a Car Loan? ›

A target credit score of 661 or above should get you a new-car loan with an annual percentage rate of around 7.01% or better, or a used-car loan around 9.73% or lower. Superprime: 781-850.

What credit score is needed for a car loan? ›

Most used auto loans go to borrowers with minimum credit scores of at least 675. For new auto loans, most borrowers have scores of around 730. The minimum credit score needed for a new car may be around 600, but those with excellent credit often get lower rates and lower monthly payments.

Can I get a car loan with a credit score of 500? ›

It's possible to get a car loan with a credit score of 500, but it'll cost you. People with credit scores of 500 or lower received an average rate of 14.08% for new-car loans and 21.32% for used-car loans in the first quarter of 2023, according to the Experian State of the Automotive Finance Market report.

What is a good FICO auto score? ›

What's a Good FICO Score? In general, a good credit score is a score of 670 or above. If you have good credit, you have the best chance of getting favorable loan terms. To get the lowest interest rates and the best loan terms possible, you'll want to aim for a credit score in the excellent category (720 to 850).

What kind of car loan can I get with a 650 credit score? ›

Average Car Loan Interest Rate by Credit Score
Average Auto Loan Interest Rate by Credit Score
Average New Car RateAverage Used Car Rate
Subprime (580-619)11.53%18.55%
Nonprime (620-659)8.86%13.28%
Prime (660-719)6.40%8.75%
2 more rows
Jul 5, 2023

How can I increase my chances of getting a car loan? ›

Improve your credit

If your credit score is below 670, it could be hard to approved for a traditional car loan. If you can wait to buy a car for a few months, work on raising your score. Focus on making on-time payments in full on revolving debt like credit cards.

Can I get a car loan with a 600 credit score? ›

However, the vast majority of borrowers have scores of 661 or higher. Borrowers with scores of 501 to 600 account for about 13% of cars financed, while people with scores of 500 or below account for less than 2%, according to Experian.

Who is the easiest to get a car loan from? ›

The best car loans for bad credit
  • Best for shopping around: myAutoloan.
  • Best for buying a car online: Carvana.
  • Best from a big bank: Capital One Auto Finance.
  • Best for used vehicle selection: CarMax Auto Finance.
  • Best for refinancing: Autopay.

What credit score is needed to buy a car without a cosigner? ›

What credit score is needed to buy a car without a cosigner? People with prime credit scores of 661 or higher likely don't need an auto loan cosigner.

What is a bad APR for a car? ›

People with excellent credit qualified for rates around 5.64 percent, while people with bad credit had an average new car rate of 14.78 percent. Rates for used cars were higher — 11.93 percent across credit scores. And the average rate for bad credit was a sky-high 21.55 percent.

Do car dealerships use FICO score? ›

The two big credit scoring models used by auto lenders are FICO® Auto Score and Vantage. We're going to take at look at FICO® since it has long been the auto industry standard.

How fast will a car loan raise my credit score? ›

How fast will a car loan raise my credit score? There's no set time frame for how long it takes a car loan to improve your credit score. After buying a car, you can expect to see your score improve after making monthly payments on time and paying down your loan balance.

Which credit score do banks use? ›

Banks in India use the TransUnion CIBIL, Experian, Equifax, or the CRIF High Mark score. Out of these, the TransUnion CIBIL score is the one that is used most commonly. All credit rating bureaus generate credit scores and reports which help lenders assess the creditworthiness of borrowers.

What credit score is needed for a $30,000 car loan? ›

In general, you'll need a FICO credit score of at least 600 to qualify for a traditional auto loan, but the minimum credit score required with vary from lender to lender. As interest rates increase due to inflation, securing a subprime auto loan may be more difficult — but not impossible.

Can I get a $20,000 loan with 650 credit score? ›

The required credit score for a $20,000 personal loan will vary from lender to lender, but a score of at least 650 will typically land you a decent interest rate and reasonably good repayment terms. Check with different lenders to find out their credit score requirements.

Can I get a 30k car with a 650 credit score? ›

If your credit score is above 620, you are likely to get a car loan with favorable terms. Most loans you can get with a 650 credit score require a down payment and come with terms of 48 months or longer. You can expect average interest rates because 650 is a middle-of-the-road credit score.

Is 700 a good credit score to buy a car? ›

As you can see, a 700 credit score puts you in the “good” or “prime” category for financing, making 700 a good credit score to buy a car. While it's always a good idea to get your credit score in its best possible shape before buying a car, if you're already around the 700 range you will be good to go.

How big of a loan can I get with a 670 credit score? ›

You can borrow $50,000 - $100,000+ with a 670 credit score. The exact amount of money you will get depends on other factors besides your credit score, such as your income, your employment status, the type of loan you get, and even the lender.

How to get 800 credit score? ›

Making on-time payments to creditors, keeping your credit utilization low, having a long credit history, maintaining a good mix of credit types, and occasionally applying for new credit lines are the factors that can get you into the 800 credit score club.

What interest rate can I get with a 700 credit score for a car? ›

What interest rate can I get with a 700 credit score for a car? Having a 700 credit score puts you in the “prime” category for borrowing. According to Experian, the average rates for this category are 6.44% for new-car loans and 9.06% for used-car loans.

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