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Your credit score is always important when applying for new loans, but when it comes to buying a car, there is no minimum score needed to be approved. Having a higher score may improve your chances of getting a loan with low rates and more favorable terms, but it's still possible to get an auto loan with a less-than-perfect score.
Read on to learn what scores are used by auto lenders and how you can improve your chances of financing a car even if you don't have perfect credit.
Is There a Minimum Credit Score to Get a Car Loan?
Credit requirements for car loans vary by lender, and there are no industry standards that dictate which credit score a lender should use or what minimum score is needed. Lenders make their own policies for how they evaluate your credit and other financial factors.
While your credit score and report are important when you are seeking a loan to buy a car, lenders look at multiple aspects of your finances when considering you for a new loan. They'll consider your income, other debt obligations and whether you've paid past loans back on time.
For auto loans, lenders may also use your auto-specific credit score. While your general scores from FICO or VantageScore® range from 300 to 850, the FICO Auto Score, for example, ranges from 250 to 900. In either case, a higher score equates to lower risk for the lender.
Ultimately, creditors look for indicators that show you've managed debt well in the past and will likely pay back this new debt on time and in full. Red flags in your credit will stand out, so be prepared to explain any blemishes, such as a collection account or several late credit card payments. Loans with the lowest rates and best terms may be tougher to get if you have these types of negative items in your credit history.
Average Interest Rates Based on Credit Score Range
Your credit score will not only determine whether you get approved for a loan, but it may also be used to establish your interest rate. The following are the average interest rates, monthly payments and loan amounts for consumers in different score ranges as of the second quarter of 2020.
While the actual interest rate and monthly payment you receive may be based on more than just your credit score range, these figures may help you in comparing any loan offers you receive as you shop for a new car.
| Average Interest Rate, Monthly Payment and Loan Amount by Score Tier | |||
|---|---|---|---|
| Credit Score Tier | Average Interest Rate | Average Loan Amount | Average Monthly Payment |
| Super prime (781-850) | 3.24% | $33,690 | $541 |
| Prime (661-780) | 4.21% | $37,866 | $574 |
| Nonprime (601-660) | 7.14% | $36,912 | $591 |
| Subprime (501-600) | 11.33% | $32,284 | $579 |
| 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 to Improve Your Credit Score Before Applying for an Auto Loan
As mentioned, the higher your credit score, the better chances you'll be approved for a loan with a low interest rate and preferable terms. Improving your credit score before applying for an auto loan can help you save money over the life of your loan, and could make a difference in what car you end up being able to buy.
First, figure out where your credit stands. You can get a free credit report and FICO® Score☉ from Experian to review. Look for areas where you can improve—especially those that could help you more quickly if you are trying to buy a new car soon.
The following are actions you can take to boost your credit:
- Bring any past-due accounts current. Paying off any collections or charge-offs and bringing any past-due accounts current is a good first step to improving your credit scores.
- Reduce your revolving debt. Credit utilization is the amount of available revolving credit, such as credit cards, you're using, and it's the second most important aspect of your credit score. Keeping your utilization ratio under 30% by paying down credit card balances is one of the quickest ways to improve your score.
- Pay all your bills on time. Payment history is the most important aspect of your credit scores, and even one late or missed payment can impact your scores. Continue to pay all your bills on time to avoid decreasing your score.
- Consider Experian Boost®ø, which could instantly raise your scores. If you pay utility, telecom or video streaming bills with your checking account, any history of paying those bills on time is not typically factored into your credit score. Experian Boost works by giving you credit for these on-time payments, potentially improving your credit scores.
- Make sure all the information in your credit reports is accurate. Review your credit reports to see where you stand and make sure all your account information is accurate and up to date.
How to Get a Car Loan With Bad Credit
If you have bad credit and don't have time to wait for it to improve, getting a car loan is still possible. In fact, there are some lenders that work specifically with people with lower credit scores. Once you know your credit score, start speaking with potential lenders to see which ones might have options for someone in your credit range.
In addition to shopping around for deals, make sure to have other aspects of your application well-organized so you can compensate for a lower credit score. Here are a few ways you can prepare for financing a car with bad credit:
- Know what you can afford. Having an idea of how much car you can afford will help you refine your search to cars with monthly payments you can handle. Research interest rates for people in your credit range, and estimate the monthly payment you could afford to take on. Doing this may get you on the same page as potential lenders, and could speed up the process of finding you the best financing option.
- Determine your down payment. A large down payment can help you lower your monthly payments, get a lower interest rate and reduce the term of your loan. A bigger down payment decreases the amount you'll have to borrow, which may cause lenders to see the loan as less risky, which could help if you have bad credit.
- Consider enlisting a cosigner. A cosigner with good credit can help improve your chances of getting approved for a car loan, and could help you lock in a lower rate. Cosigners are people that agree to apply for an auto loan with you, promising the lender that if you don't cover your car payments, they will. If you have bad credit, a cosigner could help limit the risk a lender takes and could encourage them to approve you for a loan.
Shop Around to Get the Best Auto Loan
Like anything else, you should weigh your options to find the right deal if you need to finance your car purchase. Look for lenders who finance vehicles for people with similar credit scores to yours, and also see what financing the dealer may offer.
When shopping around for the best loan, you may incur multiple hard inquiries as each lender will want to check your credit themselves to establish what you qualify for. Typically, multiple inquiries in a short period of time could cause your score to decrease slightly. But when it comes to car loans, as long as the inquiries all happen within a short period—usually around 14 days—they are counted as one when calculating your credit score. This perk allows you to engage with multiple lenders, giving you the ability to see which one offers you the best deal—without taking a big hit to your credit.