Your credit score is important when it comes to applying for new loans, but technically, there’s no minimum score needed to be approved for buying a car. A better score can increase your chances of getting a loan with better terms (i.e. low rates), but you can still get an auto loan with a below standard score.
Is there a Minimum Credit Score to have for a Car Loan?
The requirements vary from lender to lender, but there is no industry standard on a minimum score. All lenders create their own policies for financial factors and credit evaluation. They’ll look at multiple elements when considering you for a car loan, such as income, other debts, and on-time repayments from past loans. They can also use your auto-specific credit score, usually falling within a 250-900 range, and a higher score equals a lower risk for the lender. So, it’s always a smart move to pay your bills on time.
All in all, creditors will be searching for signals that you’ve managed your debts well in the past and measure that against whether you’re likely to repay this debt in-full and on-time. Be prepared to explain any red flags, such as late or missed payments. It may be more difficult to get better terms on your loan if you have these negativities in your credit history.
How does my Credit Score Range affect the Average Interest Rate?
While your credit score determines your loan approval, the range can also be used to provide your interest rate. Below are examples of average interest rates, monthly payments, and loan amounts for assorted consumers in various ranges to use as a tool as you’re shopping for a new car.
|Credit Score Tier||Average Interest Rate||Average Loan Amount||Average Monthly Payment|
|Super prime (781-850)||3.24%||$33,690||$541|
|Deep subprime (300-500)||13.97%||$28,991||$562|
Source: Experian State of the Automotive Finance Market, Q2 2020. Data applies to purchases of new vehicles.
How Can I Improve My Credit Score Before I Apply for an Auto Loan?
- Figure out your credit score and what your credit standing is. Reviewing a free credit report is the easiest way to do this. This will show you the areas that your credit can be improved in, as well as any potential credit report mistakes.
- Bring past-due accounts current. Pay off collections or charge offs.
- Reduce revolving debt. Keep your credit utilization under 30%, or pay down credit card balances to get there.
- Pay your bills on time. This is the most important aspect of your credit scores, even a single late or missed payment can negatively impact your score.
- Make sure all the information in your credit report is accurate. If there are any mistakes, take steps to correct them, thereby potentially raising your score.
- Consider hiring a Credit Repair Company, such as ASAP Credit Repair. If all of these steps make you feel like you’re in over your head, we can certainly help. We’ll guide you and give you the correct tools to improve your credit score and keep it healthy.
How Can I Get a Car Loan when I still have Bad Credit?
If you don’t have the time to work on improving your credit, here’s a few things to consider and prepare for buying a car with a less-than-desirable credit score:
- Give yourself a budget. Knowing what you can afford will help you refine your search and keep you at monthly payments you can handle. It could help speed up the entire process of finding the best financing option for yourself, as well.
- Determine your down payment. Generally, the larger the down payment, the lower your monthly payments which, in turn, mean a lower interest rate and reduced terms of the loan. It decreases the amount you’ll need to borrow and could be favorable to lenders in terms of lowering risk.
- Consider a cosigner. If they have good credit, they can help improve your chances of getting approved for a car loan and potentially lock in a lower rate.
- Shop around for the best loan. Look for lenders who finance vehicles for people with similar credit scores to yours. Also check to see what financing the car dealer might offer too. If you’re shopping around, try to keep searching within 14 days. As these inquiries are hard pulls, they can negatively affect your score. If they happen within a short time, they will be counted as one when calculating your score.