What credit score do you need to buy a car?

If you’re looking to buy a car, one of the first things you’ll need to consider is your credit score. Your credit score is an indication of how likely you are to repay a loan, and the higher your credit score, the more favorable your interest rate and terms will be.

Generally, you’ll need a credit score of at least 600 to qualify for a traditional auto loan, but the minimum credit score required to fund an auto loan varies by lender. If your credit score falls into the subprime category, you may need to seek out a bad credit car loan. These usually have higher interest charges than traditional car financing.

What is the minimum credit score required to buy a car?

Although there is no official minimum credit score required to apply for an auto loan, lenders do have minimum standards they look for when reviewing your application. And, as a general rule, the lower your credit score, the more interest you will have to pay.

The minimum credit scores to qualify for car loans vary depending on the lender and the car you are looking to finance. Some lenders may consider you if your credit score is below the advertised minimum if you are a current customer or if you can prove to them that you are a low-risk borrower.

Your credit score won’t be the only factor used to determine your auto loan interest rate, either. Dealerships can also assess your income, employment history, and debt ratio. However, your credit score will still be a big part of the process.

How Credit Scores Affect Auto Loans

A credit score is a numerical representation of the likelihood that you will repay a loan. The higher your credit score, the less risky you are considered and the more likely you are to receive a favorable interest rate on your loan and better terms.

Here’s a quick look at how a good credit score can benefit you when buying a car.

  • Lower interest rates. A good credit score – usually a score of 680 or higher – can help you get a low interest rate from the dealership. In fact, dropping your score from 600 to 780 could cut your rate in half.
  • Lower monthly payments. The lower interest rate can help you get a lower monthly car payment, potentially leaving room in your budget for other financial priorities.
  • Lower deposit. A good credit rating can also help you avoid a large down payment and benefit from a shorter loan term. Although making a big one can still be beneficial.
  • Higher chance of approval. A good credit rating also improves your chances of getting approved for a loan.

What credit scores are used

The credit score that will be used to determine your auto loan interest rate varies by lender. The two most common scores used by lenders are the FICO score and VantageScore.

FICO score

The FICO score is the most widely used score for auto loans. The score ranges from 300 to 850. The score is calculated based on credit mix, payment history, amount owed, average credit history, and available credit.

VantageScore

Previously, VantageScore ranged from 501 to 990, but now it ranges from 300 to 850. It weighs factors differently than FICO and has a different set of metrics. Metrics used include payment history, credit depth, usage, balances, recent credit, and available credit.

Auto loan interest rates by credit score

The less risk you present to lenders, the lower the interest rate you can expect to pay. All rates mentioned are averages for new cars in the first quarter of 2022, according to the Experian State of the Automotive Finance Market report.

FICO credit score of 500 or less

Those with credit scores below 500 are considered to have deep subprime credit and will likely face the highest interest rates. The average auto loan interest rate for the deep subprime category was 14.76%. But, depending on your income and other factors, you might not even qualify for financing with a 500 credit score.

FICO credit score 501 to 600

Above 500 up to 600 is in the subprime range. You may have more borrowing options, but you’ll still likely benefit a lot from boosting your credit score before you apply, if you can afford it. Rates for this range averaged 10.87% – still high.

FICO credit score 601 to 660

Those in this range are considered to have fair credit and are classified as unpreferred. Interest rates are somewhat more likely to be favourable, averaging 6.7%.

FICO credit score 661 to 780

This wider range is considered paramount. And with an average interest rate of 3.56%, you can reduce the cost of your loan by several thousand dollars by increasing your credit before applying for a car loan.

FICO credit score 781 to 850

Those with credit scores within this range are considered super-preferred. If you have this excellent level of credit, you will likely qualify for the lowest rates. You may also qualify for 0% finance offers from some automakers – or discounts.

How to get a car with bad credit

If your credit isn’t perfect, you may have to pay a higher interest rate or forgo certain benefits. Direct lenders and dealers may not even want to work with you, leaving you with limited options if you can’t pay cash. The options you have may have higher interest rates and fees.

Here are some ways to get a car with bad credit:

  • Buy a subprime loan. Subprime loans are riskier for lenders. They are available to people with low credit scores, but they will incur higher interest rates and fees.
  • Go buy here, pay here dealership. These dealerships usually have higher interest rates and additional fees for financing. You may also need to purchase gap insurance, so be sure to shop around and compare each option.
  • Pay in cash. If you have enough cash to cover the entire cost of the vehicle, you can skip the auto finance process.
  • Improve your credit score. If you can afford to wait, try increasing your credit score with a credit-building strategy. This may mean paying off a few small debts, not opening new credit card accounts, or increasing your available credit.
  • Check your credit report for errors. It can take up to 30 days for errors to be cleared, so be sure to take a good look before you’re ready to buy.

The bottom line

While knowing your credit score is a key factor in the auto loan approval process, it’s not the only factor. Keep track of your credit score and work to improve it if you’re struggling to meet the minimum score requirement.

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