What Credit Score is Needed to Buy a Car?

There’s no credit score per se required to buy a car, but your score can have a big influence on lending decisions. In general, the lower your credit score, the less financing options you may have — which could also mean that you could end up paying more for the life of your loan.

How Credit Scores Affect Your Ability to Buy a Car

The credit scoring tier your credit score falls within has a lot to do with getting a car loan. Find out how your score can affect both your ability to get a loan and the interest rate you may receive.

1. Approval rate varies

In the first quarter of 2019, the average credit score for a new car loan was 716. For a used car loan, the average score was 657.

If your credit score happens to be below the average credit score of average car buyers, however, it’s still possible to get financed for a car loan.

For example, borrowers with credit scores from 601 to 660 qualified for around 18% of car loans in the first quarter of 2019, whereas borrowers with credit scores ranging from 501 to 600 qualified for approximately 15% of car loans during that same time period. Borrowers that had scores of 500 or less qualified for 3.6% of the market.

2. Lower credit scores can equal higher interest rates

One way lenders gauge their risk of lending money is to look at credit scores. In general, someone with a lower credit score is considered a higher risk than someone with a higher score. Lenders may offer people with lower credit scores higher financing rates to help offset their risk.

For example, in the first quarter of 2019:

  • A person with a credit score of 781 or higher — which is the highest credit scoring tier — qualified for an average new car loan interest rate of 4.2% and an average used car rate of 4.8%.
  • Those with a score in the next highest tier of 661 to 780 qualified for an average new car loan interest rate of 5.1% and an average used car rate of 6.5%.
  • Car buyers with a credit score in the middle tier, ranging from 601 to 660, received average interest rate offers of 8% for new cars and 11.4% for used vehicles — a big difference from the average rates in the next highest tier.
  • The average interest rate for people with lower credit scores of 501 to 600 for a new car loan was 12.4% whereas the rate for a used car was 17.5%
  • Finally, those with the lowest credit scores of 500 or less received the offers carrying the highest interest rates: 14.97% for new cars and 20.24% for used cars.

How Much More You Could End Up Paying With a Low Credit Score

When it comes to interest, just a few percentage points can make a big difference in what you may pay over the life of your car loan. Here’s a hypothetical example:

Two borrowers with different credit scores — one has a 750 and one has a 650 — want to buy a used car for $35,000 on a 72-month loan term. The person with a 750credit score is offered a 6.5% interest rate, whereas the person with a 650 score is offered an 11.4% interest rate — the average rates for borrowers with these credit scores in the first quarter of 2019.

The borrower with the 650credit score pays back $13,483.64 in interest charges over the life of the loan, and the borrower with the 750 credit score pays back much less — only $7,361.00.

What to Focus on if You Have a Lower Credit Score

If you’re worried about getting approved for a car loan due to a lower score, it can help if you have a stellar payment history on any past car loans you’ve had. In addition, having the same job for at least a few years, ownership of a home and the ability to put down a sizeable down payment are also positives.

When it comes to choosing where to shop for a vehicle, you might want to opt to visit a larger dealership. The reason is that they may have a wider variety of lending relationships, which can provide you with more financing options if your credit score is an issue.

Monitoring Your Credit Score

It’s helpful to monitor your credit score so you can know ahead of time where you stand before you attempt to get a car loan. ScoreSense provides you with not just one of your credit scores but all three. The product also provides users with a copy of each of their credit reports from all three credit bureaus.

Monitoring your credit scores and reports can also alert you to any changes in your information, some of which might be in error. If you’re not already using a credit monitoring product, consider ScoreSense.

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