Ideal Credit Score for Auto Loans: What You Need to Know

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Car shopping? If you plan to take out a loan, you’ll want to know how your credit score affects your ability to get approved for a loan, the term and rates.

And while there isn’t a minimum credit score to buy a car, a low credit score can make it harder to get approved for a loan, or have you paying more in interest fees over the length of the loan.

Let’s take a look at what your credit score should be to finance a car, and how your credit score affects what you end up paying.

What Is A Decent Credit Score To Buy A Car?

First, it’s important to note that auto lenders often use different scoring models when reviewing your loan application and deciding whether to approve you for a car loan. For example, your FICO^® Score.

So what is a good credit score to buy a car? According to the Experian^TM State of the Auto Finance Market report, the average credit score for new cars in the third quarter of 2019 was 715, and 662 for a used car.

Seeing as a good credit score hovers around 670, you’ll need a fairly good credit score whether you’re buying new or used. After all, credit scores help auto lenders determine how financially responsible you are, and how risky you are as a borrower. While there’s no decent credit score to buy a car, the higher your credit score, the better.

Can I Get A Car Loan With A Credit Score Of 600?

You can certainly get a car loan with a credit score of 600, which is considered subprime. However, you’ll probably have a tougher time getting approved for a loan with a favorable interest rate. According to Experian^TM, the average interest rate for a new car from a borrower with a deep subprime credit score (i.e., a credit score between 300 and 500) in 2019 was 14.3%.

For new cars from a borrower with a super-prime credit score (i.e., a credit score between 781 and 850), the average interest rate was 4.01%. As you can see, those with low credit scores were paying more than 10% on their car loans.

Can I Buy A Car With Average Credit?

Yes. According to the Experian^TM State of the Auto Finance Market report, about 20% of car loans are subprime loans. This means that these car loans were financed with credit scores in the 501 to 600 range.

However, if you have average credit, you might want to consider building your credit so that you have a higher score when you apply for loans.

Before you shop for a car, it’s a good idea to get a credit report and see what your score is. It’ll help you gauge the likelihood of you getting approved for a loan and how much you’ll be paying in interest fees.

After you look over your credit report to see what your score is and which areas you can approve upon, you might want to spend some time building your credit score before buying a car. This includes making on-time payments, having a mix of credit and not having too high of a credit card balance.

You’ll also want to scan your credit report for errors. These mistakes could be anything from incorrect personal information to incorrect loan amounts. They could also make you seem less creditworthy than you actually are. Filing a dispute to fix these credit report errors with the credit bureaus before you apply for a loan could up your score.

It’s also a good idea to get preapproved for a loan. When you get preapproved, you’ll know the length of the loan, the maximum amount you can borrow and the APR ahead of time. Having that information in tow before stepping foot inside a dealership can ensure you get the best deal possible.

Bottom line: The lower your credit score, the higher your interest rate. In turn, you’ll be paying more for the entire car loan.

What Is The Minimum Credit Score To Buy A Car?

You can certainly take out an auto loan with a low credit score. However, note that the lower your credit score, the higher the interest rates.

You might also find yourself with a high monthly payment. If that’s the case, you could extend the duration of the loan. However, note that it could affect how much you end up paying overall for your car. You’ll definitely want to do some simple math beforehand.

According to the Experian^TM report, 85.2% of new cars are financed, while about half – 52.8% to be exact – of used cars are financed. As used vehicles are more affordable, you might want to go the used car route. Because used rides are less expensive than new ones, you can get by with a manageable down payment, a smaller loan and lower monthly payments.

If you already have a car, you might consider doing a trade-in, which shaves off the sticker price of the vehicle you have your eyes on.

When car shopping, you’ll be to be sure you know what your credit score is. Want to know your credit score? With Rocket Homes^SM, you can monitor your credit profile and check your score for free.