Your credit score matters in numerous circumstances, such as when applying for a mortgage, renting an apartment, getting insurance, or requesting an auto loan. For example, if you’re looking to buy a new car, this unique-to-you number shows lenders how likely you will be able to repay an auto loan and the interest rate you’re eligible for.
Although there is no universal minimum credit score, higher scores generally mean a greater likelihood of getting approved for a loan and securing better loan terms. Since interest rates vary based on credit scores, the total amount you’ll pay for a new car also depends on this critical number.
So, what credit score is needed to buy a car?
In this article, the financial experts at Western Shamrock address what credit score you need to buy a car and how you can have the best car-buying experience even with lower credit.
What Minimum Credit Score Is Required to Buy a Car?
Before we dive into “What is a decent credit score to buy a car?” the first thing to understand is no single credit score is required for an automobile purchase. Every lender operates under different standards, so what’s “good enough” for one lender may be a cause for rejection by another.
Now, let’s look more specifically at a breakdown of how the different ranges of credit scores can impact auto loan approvals.
Superprime (781-850)
A credit score is categorized as “superprime” if it is exceptionally high, meaning that you have a well-established history of responsible financial behavior and are a low-risk borrower. If you have a score between 781 and 850, you’ll have the easiest approval experience and qualify for the lowest interest rates.
Prime (661-780)
A “prime” credit score between 661 and 780 is very good and indicates to lenders that you are generally a responsible borrower from whom they don’t have to worry about receiving payments. With a prime score, you’ll qualify for competitive interest rates on your auto loan.
Nonprime (601-660)
If you have a credit score between 601 and 660, this is considered “nonprime.” You may have slightly worse credit than the average American. But while you will have to pay higher interest rates, your new automobile purchase is still financeable.
Subprime (501-600)
Lenders typically consider credit scores between 501 and 600 to be subprime, meaning they will charge higher interest rates and fees for loans. Rates start becoming high when you have a subprime score, and getting approved for an auto loan is also more difficult.
Deep Subprime (300-500)
Deep subprime credit scores under 500 create the most significant vehicle financing challenges. If your credit score dips this low, it will be hard to qualify for a loan. If you are approved, you’ll likely have to make a sizeable down payment or pursue special financing options.
How Credit Scores Affect Auto Loan Interest Rates
Lenders use credit scores to set APRs when considering a borrower’s creditworthiness. People with higher credit scores receive lower APRs because they are viewed as less risky borrowers. Meanwhile, those with low credit scores receive higher APRs as a way of compensating for the increased lending risks.
It is common for lenders to use the “prime” credit score range of 661 to 780 as a baseline when assessing interest rates. They add a margin from this baseline to calculate the final APR, which may be higher or lower than “prime.”
Long-Term Impacts
There’s a long-term financial impact associated with higher interest rates because you’ll pay substantially more during the life of your loan and experience a more significant overall financial burden.
In addition to higher monthly payments and greater total interest paid, you could end up eventually owing more than the car is worth or initially be forced to choose a less expensive car to drive.
Example Comparison
Here’s a breakdown of the average interest rates based on credit tier for new and used vehicles:
|
Credit Tier/Score |
Average APR: New Car |
Average APR: Used Car
|
|
Superprime: 781-850 |
4.77% |
7.67% |
|
Prime: 661-780 |
6.40% |
9.95% |
|
Nonprime: 601-660 |
9.59% |
14.46% |
|
Subprime: 501-600 |
13.08% |
19.38% |
|
Deep subprime: 300-500 |
15.75% |
21.81% |
|
Source: Experian Information Solutions, 4th quarter 2024. |
||
You can use a car loan calculator to estimate your monthly car payments and total loan costs.
For example, someone with a credit score of 800 may have monthly payments of $375.32 for a new $20,000 vehicle on a five-year loan with no down payment. However, someone with a credit score of 550 might have to pay more like $455.88 per month for that same vehicle with the same terms.
Understanding the FICO Auto Score
As we continue in our discussion of “What a good credit score is to buy a car?” it’s essential to understand how the FICO Auto Score (ranging from 250 to 900) differs from the standard FICO score.
Auto lenders use their own specialized score because it is tailored to automobile purchasing and lending. FICO Auto Scores are a calculation of credit score utilization rate, length of credit history, new credit, and mix of credit. Other factors are auto loan bankruptcies and delinquencies.
The FICO Auto Score model applies different weights to factors as they relate to auto loan payment history. For example, medical bill debt won’t affect your FICO Auto Score like it might your traditional FICO score.
How to Buy a Car with Bad Credit
If you have bad credit, what credit score do you need to buy a car?
Fortunately, there are ways to still finance a new or used automobile even if your credit score is categorized as “nonprime” or below.
Increase Your Down Payment
One idea to qualify for an auto loan with bad credit is to increase the amount of your downpayment. When you do this, it reduces the risk for the lender and also your total loan amount.
Prove Financial Stability
To back up your claim as a financially responsible person who promises to make monthly payments on time, you can provide supporting documentation to your lender. Examples of financial stability documents include proof of income, length of employment history, and residence.
Consider a Co-Signer
If you don’t qualify for a loan on your own or only qualify with a very high interest rate, it may be time to enlist the help of someone you know well and trust. A co-signer with better credit can help you secure an auto loan at a lower rate.
Explore Special Financing Options
For bad-credit borrowers, there are special financing options worth learning about. Take the time to do some research about subprime auto loans and dealership financing offers to determine whether an alternative financing method is right for you.
Shop Around for Lenders
Various types of businesses offer auto loans, and every loan company is different. Therefore, it’s worth comparing loan offers from banks, credit unions, and online lenders. For example, Western Shamrock offers installment loans to help with car payments that can be secured with collateral or unsecured without.
How to Improve Your Credit Before Buying a Car
If you are still concerned about what is a good credit score to purchase a car, there are practical steps you can take to boost your credit before choosing a vehicle. Taking action to improve your credit now can put you in a better position to afford the car you want and pay lower monthly interest rates.
For example, paying all your bills on time is always beneficial because late payments harm credit scores. It is also helpful to reduce your credit utilization ratio by paying close attention to your credit card balances versus credit limits.
Avoid applying for new credit cards or other loans right before getting an auto loan. Applying for multiple lines of credit and loans at the same time can raise red flags for lenders.
Meanwhile, keep old credit accounts open even if you don’t regularly or actively use them. Having these accounts associated with your credit helps establish and maintain credit history length, signaling financial stability and a healthy mix of credit.
How an Auto Loan Can Help Build Your Credit
An added bonus of taking out an auto loan is that it can help you rebuild your credit over time. Making on-time payments for your car each month boosts your credit score and contributes to a positive payment history.
Getting an installment auto loan can improve your credit mix and overall credit profile. Once you’ve made consistent and timely payments on your loan, loan refinancing may be an option since you could potentially qualify for a better interest rate in the future.
Next Steps After Knowing What Credit Score Is Needed to Buy a Car
Although no set credit score is needed to buy a car, it’s important to remember that higher scores lead to better loan terms. However, financing is still possible with lower scores, especially if you evaluate all available options and work to improve your score before applying for an auto loan.
To start the auto loan process, check your current credit score since it may fluctuate over time. It is highly recommended to explore your financing options even before going car shopping at a dealership or online. This way, you’ll be prepared for the loan terms and rates lenders offer and be able to adjust your vehicle preferences and overall budget accordingly.
If you need an auto loan with flexible terms and quick and convenient access to funds, Western Shamrock can help. We make it easy to apply for a loan online and also have many physical branch locations throughout Texas, Oklahoma, and Missouri.
We also welcome you to check out the other articles on our blog to learn about important financial topics that impact your life.
