What Credit Score Do You Need to Buy a Car?

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What Credit Score Do You Need to Buy a Car?

If you want to purchase a new automobile, you’ll almost certainly need an auto loan to help you pay for it. With the average cost of a new automobile in the United States now nearing $47,000, the vast majority of customers do. 12 Whether you apply for a loan through a dealership or a bank, the lender will do a credit check on you as part of the application process. Here’s what credit score you’ll need to get a vehicle loan—and what you can do if you don’t have pristine credit.

Key Takeaways

  • Your credit score plays a significant role in whether you get accepted for a vehicle loan.
  • Specialized credit ratings, such as a FICO Auto Score, are used by certain lenders.
  • To acquire a loan at a favorable interest rate, you’ll need at least prime credit, which is a credit score of 661 or higher.
  • If you have bad credit, you may still acquire a loan, but you will have to pay extra or find a cosigner.

What Credit Scores Do Auto Lenders Use?

You don’t only have one credit score, but multiple. The scoring models utilize the same fundamental information from your credit reports, but they weight different elements. The two primary scoring models are as follows:

  • FICO. The most well-known and extensively utilized score business. FICO ratings vary from 300 and 850.3.
  • VantageScore. A newer rival to FICO. Though previous VantageScore versions varied from 501 to 990, the newest VantageScore ranges from 300 to 850, the same as FICO. 4

The primary scoring algorithms may also provide more tailored ratings for specific reasons. FICO, for example, provides the FICO Car Score, an industry-specific credit score aimed at auto lenders. The FICO Auto Score has a different weighting mechanism than other FICO scores, with credit usage having a greater influence and isolated late payments—such as a one-time error—having a smaller impact. To make things even more complicated, there are many variations of the FICO Auto Score. 56

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A FICO Auto Score is used by many vehicle dealerships, but not all. If you’re unsure and interested, ask your lender which credit scores they look at before agreeing to a credit check.

What Is the Minimum Score Needed to Buy a Car?

Lenders consider your income and credit score while reviewing your vehicle loan application. Lenders categorize consumers according on their ratings, such as:7

  • Super prime: 781 to 850
  • Prime: 661 to 780
  • Nonprime: 601 to 660
  • Subprime: 501 to 600
  • Deep subprime: 300 to 500

In general, lenders prefer consumers in the prime category or higher, therefore a credit score of 661 or higher is required to qualify for most conventional vehicle loans.

How to Buy a Car With a Poor Credit Score

If your credit score is below the prime range, you may still be able to secure a car loan—but it may be more difficult and costly. If you have fair or low credit, you have three alternatives for financing a car:

1. Be willing to pay a higher interest rate

Lenders consider you a riskier application if you have bad credit. You may be able to get a vehicle loan, but your interest rate will almost certainly be significantly higher than that of someone with outstanding or exceptional credit.

In Q2 2022, for example, the average interest rate for prime borrowers buying new automobiles was 4.03%. The rate for nonprime borrowers was 6.57%, while the rate for deep subprime borrowers was 12.84%. 8

That higher rate might significantly increase your overall loan cost. For example, if you financed $37,000 with a four-year loan at 4.03% interest, your monthly payment would be $836 and your total interest would be $3,124.

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If you financed the same amount but only qualified for a four-year loan at 12.84% interest, your monthly payment would increase to $990. And you’d pay total interest of $10,505—a $7,381 difference.

The Better Your Credit Score, the Lower Your Interest Rate
Prime BorrowerNonprime BorrowerDeep Subprime Borrower
Loan Amount$37,000$37,000$37,000
Loan Term48 Months48 Months48 Months
Interest Rate4.03%6.57%12.84%
Monthly Payment$836$879$990
Total Interest$3,124$5,175$10,505
Total Repaid$40,124$42,175$47,505

2. Go to a dealer that specializes in buyers with poor credit

If you are unable to get a loan from a typical dealership, you may be able to obtain financing from one that specialized in customers with bad credit. They are often represented as buy here, pay here dealerships and provide in-house financing for used automobiles.

However, in order to mitigate the risk of lending to applicants with poorer credit ratings, these dealers often demand very high interest rates.

3. Apply for a loan with a cosigner

If your credit score is in the nonprime to deep subprime category, you might think about getting a vehicle loan with a cosigner. A cosigner is someone who is prepared to apply for a loan alongside you and, preferably, has decent to exceptional credit. A cosigner shares loan responsibilities, lowering the lender’s risk. You have a better chance of qualifying for a loan and getting a cheaper interest rate than if you applied on your own. However, if you are unable to make the loan installments, your cosigner will be responsible for the debt.9

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Tip

You’ll have a better notion of how much you can afford to spend if you shop for a loan before you shop for a vehicle.

If I Use a Cosigner, Will I Get the Same Rate They Would Alone?

When you apply for a loan with a cosigner, the lender looks at both of your credit ratings. As a result, you will not get the same rate as they would if they applied alone. You are, nevertheless, more likely to be authorized and earn a lower interest rate. 10

Can I Buy a Car With No Credit?

It’s challenging, but it’s doable. Lenders see persons with no credit in the same way as they do those with terrible credit. Typically, a cosigner is required, or you may have to purchase from a dealership that provides in-house financing.

Are Interest Rates the Same on New Versus Used Cars?

Pre-owned automobile loans often have higher interest rates than new vehicle loans. In Q2’22, the average interest rate on a new automobile loan was 4.33%, while used cars had an average interest rate of 8.62%. 11

The Bottom Line

Whether you’re searching for a new or used automobile, your credit score can affect your financing possibilities, so it’s important to know where you stand. Some credit card providers and internet sites will provide you with your credit score for free.

It’s also a good idea to get car loan estimates from one or more banks and credit unions before going to the dealership. This might help you discover the best financing arrangement and provide you more negotiating power with the dealer. It may also assist you in determining how much you can afford to spend on an automobile.

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