What Credit Score Do You Need to Buy a Car?

To get the most favorable terms and interest rates on an auto loan, lenders typically look for a credit score in the “good” to “excellent” range (620 – 800+). However, it’s possible to get a car loan with a lower credit score, though you may face higher interest rates or more stringent terms.

Are you looking to purchase a new or used car but don’t have the cash readily available? A car loan can help. Before the lender approves your loan, they will likely check your credit report. So, what credit score is needed to buy a car?

There’s no magic number that qualifies you for an auto loan. Most people find car loan options, even if they have bad credit. However, the better your credit, the more loan options you’ll have and the lower interest rates you’re likely to find.

Here we’ll take a closer look at how your credit score impacts the auto loan process and explains what credit score you need to buy a car.

What Credit Score Is Needed to Buy a Car?

There is no set credit score for getting an auto loan, but generally a FICO® score of around 670 or higher should get you a decent auto loan. Fortunately, even those with poor credit can often find auto loan options, although your credit score will significantly impact how much you pay in interest. Typically, those with higher credit scores get auto loans with lower interest rates.

According to the FICO scoring model, credit scores over 669 are good (670 – 739), very good (740 – 799), and exceptional (800 – 850), and they fall into the prime or super prime lending category. If you have good credit or better, you may qualify for lower interest rates and have an easier time securing an auto loan.

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Why Bad Credit Scores Mean Higher Interest Rates

Lenders use credit reports to determine your creditworthiness. If your credit score falls below the good range, lenders consider you to be at a higher risk of defaulting on the loan. To overcompensate for this higher risk level, lenders often attach higher interest rates to the loan. This action results in higher payments for you.

Imagine you want an auto loan for $40,000. If you have excellent credit and get a 60-month new car loan with a 5.64% interest rate, you’ll pay an additional $5,998 in interest for your vehicle.

But if your credit score falls into the 601 – 660 range, your 60-month loan might come with a 9.60% interest rate. In that case, you’ll pay around $10,522 in interest over the life of the loan—a full $4,524 more than someone with stellar credit.

These lower credit scores don’t just mean higher monthly payments—they also mean more money spent overall. Things get even worse for borrowers in the deep subprime market if they buy used cars rather than new cars. Some unfortunate consumers pay more than 20% interest on their loans.

The Problem With Subprime Auto Loans

If your credit score falls into the subprime level, it doesn’t mean you can’t buy a car—but your options may be limited. While there are plenty of lenders in the subprime market, these loans, also referred to as near-prime, non-prime, subpar, or second-chance loans, are notoriously risky.

On one hand, a subprime loan can allow you to buy a car even if you have bad credit or even no credit, in some cases. On the other hand, you’re likely to face higher interest rates and additional fees, such as processing fees, higher late payment costs, and longer payment terms.

These added fees and additional time frames can be difficult to manage, especially if your monthly payments are too high.

Before you opt for a subprime loan, be sure to read the fine print. Make sure you understand exactly what your monthly payments are and if there are any fees not included in this amount. Also, carefully set your budget to make sure you can afford to make these monthly payments.

The last thing you want to do is default on your car loan. Missed payments significantly impact your credit, and if you miss too many payments, the lender can repossess your vehicle.

Alternatives to Subprime Auto Loans

Of course, the first alternative to a subprime auto loan is to take steps to repair your credit. Improving your credit by just a bit could make a big difference in your interest rates and overall monthly payments.

If you need a car now and can’t wait to improve your credit, there are some other options, including:

Leasing a car. If your credit score is not quite up to par, you could consider leasing a car instead. This step could give you time to build your credit. However, be sure to read the details of the lease carefully so you understand the terms and conditions.
Using a cosigner. If you don’t qualify for a prime auto loan, you can consider asking a friend or family member to cosign a loan for you. Based on their credit history, this step may help you qualify for an auto loan with better rates.
Offering a high down payment. While offering a higher down payment may not help improve your interest rates, it could make your monthly payments lower.

How to Get Preapproved for a Car Loan

Before you start shopping for a car loan, it’s important to take a look at your current credit score. This can help you determine what type of auto loan might be right for your situation.

Many lenders, including banks and credit unions, allow you to prequalify for an auto loan before you even start shopping for a new car. In most cases, this preapproval process can be done online. This can allow you to compare various interest rates and offers without even leaving the house.

When completing this application, you’ll need to provide various pieces of information, such as your Social Security number, work information, and income. The lender uses this information when deciding whether to approve your loan.

When you apply, the lender will perform a hard credit check, which could slightly impact your credit. If you’re approved, you’ll get a loan proposal, complete with an interest rate and repayment terms.

Be sure to read through this information very carefully. You want to make sure you know exactly how much you must pay each month and that this amount fits into your budget.

Keep an Eye on Your Score to Know Where You Stand

It can be hard to save up enough money to buy a car outright. Thankfully, auto loans aren’t hard to qualify for—even if you have less-than-perfect credit. The better your credit, the lower your interest rate might be.

Don’t apply for a subprime or nonprime loan unless you have no other choice. Instead, take steps to improve your credit so you can get an auto loan with better interest rates. You can start getting on top of your credit today by signing up with ExtraCredit®, which allows you to track 28 FICO scores and provides credit monitoring services.

[KB1]https://www.marketwatch.com/guides/car-loans/auto-loan-interest-rates-by-credit-score/