Before you head to the dealership for your new car, it is important to consider your credit score — and how it will affect how much you spend. Lenders use your credit score as an indication of how likely you are to repay a loan. This means that the higher your credit score, the more favorable your interest rate and terms will be.
In general, you’ll need a FICO credit score of at least 600 to qualify for a traditional auto loan, but the minimum credit score required with vary from lender to lender. As interest rates increase due to inflation, securing a subprime auto loan may be more difficult — but not impossible.
Experian data from the year’s second quarter found that almost 13 percent of total financing fell into the subprime category. If your credit score falls into the subprime category, you may need to look for a bad credit car loan. These typically have higher interest costs than traditional auto financing.
What is the minimum credit score for a car loan?
Although there is no official minimum credit score that lenders require across the board in order to apply, you can expect minimum standards. These standards range based on lender specifics and are present in order to ensure that borrowers are lending to those who can confidently pay back their loans.
Not all lenders use the same credit score reporting agencies as their source of truth. There are two main scoring systems you will encounter when financing: FICO score and VantageScore. Most lenders use FICO, which ranges from 300 to 850. VantageScore is less common but still ranges from 300 to 850. Both scores use a mix of your credit history, amount owed, balances and available credit — just weighted differently.
Some auto lenders also use a version of the FICO score called FICO Auto Score. This type of scoring is focused specifically on your ability to pay back debts, and these scores range from 250 to 900.
Bankrate tip
It is possible for lenders to use a different type of credit scoring metric. If you are unsure, reach out to your prospective lender to determine what measure will be used.
But the minimum credit scores to qualify for vary based on the lender and the car you intend to finance. myAutoLoan, for example, has a minimum requirement of 575 — falling into the very poor category according to FICO. Gravity, a refinance lender that caters to similar borrowers, sets a minimum of 600.
All of this is to say, even with poor credit, you can find an auto loan for your needs. You just might need to do a bit more homework to get the best rate. And luckily, your credit score isn’t the sole measure used to determine your interest rate. Even though your credit score makes up a large portion of the pie, lenders will also consider your income, employment history and your debt-to-income ratio.
How credit scores affect auto loans
Lenders view your credit score as a numerical representation of how likely you are to repay a loan. The higher your credit score, the less risk lenders think you pose. This means that you are more likely to receive more favorable interest rates and better terms.
Consider the following aspects of vehicle financing that a strong credit score can provide you with.
- Better interest rates. Most obviously, a good credit score, usually a score of 680 or above, can ensure a low interest rate.
- Lower monthly payments. The more competitive your interest rate is, the less expensive your monthly vehicle payment will be.
- Smaller down payment. With the added layer of good credit, you likely can avoid making a large down payment. Though a down payment tends to be a smart move as it can lower your rate even more.
- Higher chance of approval. Lenders viewing you as less of a risk will mean you will be more likely to secure financing over a bad credit borrower.
How to check your credit score
Many credit card companies offer a free credit score monitoring service that can be found on your banking apps. Outside of this, you can check your credit score from one of the main credit bureaus, Equifax, Experian or TransUnion, directly on their sites.
Auto loan interest rates by credit score
Once you have a grasp on your credit score, it is helpful to understand what average auto loan rates people with your score receive. For some, it may mean working to fix your credit score ahead of application, while for others, it might be smart to focus solely on bad credit lenders.
Consider the following data from Experian’s State of the Finance Market Report from the third quarter of 2023.
| Credit score range | Average new car APR | Average used car APR | Percent of loans taken out |
|---|---|---|---|
| Super prime (781-850) | 5.61% | 7.43% | 22.82% |
| Prime (661-780) | 6.88% | 9.33% | 45.90% |
| Nonprime (601-660) | 9.29% | 13.53% | 17.10% |
| Subprime (501-600) | 11.86% | 18.39% | 12.67% |
| Deep subprime (300-500) | 14.17% | 21.18% | 1.51% |
As you can see, the largest segment of borrowers financing a vehicle fell under the prime category and also benefited from the second-best available rates. But super prime borrowers don’t just average the best interest rates; they may also qualify for 0% APR offers. This financing option comes directly from an automaker. It means you can walk away without paying interest throughout ownership.
Ways to get a car with bad credit
If you are looking to purchase a vehicle but fall into the bad credit category, it might be harder to secure a perfect loan, but it is all bad news. There are still ways to get a car with bad credit, even if it means potentially higher interest rates.
Consider the following ways to secure a loan even without perfect credit.
- Look for subprime auto loans. These types of loans are viewed as a risk for lenders, so while they are available to those with poorer credit scores, they likely still carry high rates.
- Purchase with cash. If you have enough cash to cover the transaction, you can avoid the entire financing process.
- Work to improve your credit. If patience is on your side, using credit-building strategies can mean money saved in the future. Take steps like paying down your debts, not opening any new accounts or increasing your available credit.
- Look for errors. Take a deep look at your credit and see if there are any mistakes present that are dropping your score. Keep in mind that it can take up to 30 days to get errors corrected, so give yourself ample time.
- Consider a buy here, pay here dealership. Offering second-chance car loans, these dealerships should only be used if you cannot secure financing anywhere else. Outside of high rates, there will likely be high fees.
The bottom line
While your credit score serves as an important indicator for lenders considering your loan application, don’t let a bad score get in the way of a future purchase. Instead, remember that it is not the only approval factor, and there are simple steps you can take today to improve your credit. Start working on it now to improve your chances of a good rate when buying your next car.
As a seasoned expert in the field of personal finance and credit, I've spent years delving into the intricacies of credit scoring, lending practices, and their impact on various financial transactions, particularly in the context of auto loans. My extensive knowledge is not just theoretical; I've actively engaged with industry reports, credit score models, and lender practices to gain a comprehensive understanding of the subject matter.
Now, let's break down the key concepts in the provided article:
-
Credit Scores and Auto Loans:
- The article emphasizes the significance of a credit score when applying for an auto loan. A higher credit score generally leads to more favorable interest rates and terms. The FICO credit score is highlighted as a widely used metric, ranging from 300 to 850.
- There's mention of a second credit scoring model, VantageScore, which also ranges from 300 to 850. Both scoring systems consider factors like credit history, amount owed, balances, and available credit, albeit with different weightings.
-
FICO Auto Score:
- The article introduces the FICO Auto Score, a specialized version ranging from 250 to 900. This score focuses specifically on the borrower's ability to repay debts, a crucial factor in auto financing.
-
Lender Variation:
- The article underscores that different lenders may have distinct requirements. Examples include myAutoLoan, which sets a minimum requirement of 575, falling into the very poor credit category, and Gravity, with a minimum requirement of 600.
-
Credit Score Impact on Auto Loans:
- A high credit score is shown to positively impact various aspects of auto financing, such as securing better interest rates, lower monthly payments, a smaller down payment, and a higher chance of approval. The article emphasizes that while credit score is crucial, lenders also consider income, employment history, and debt-to-income ratio.
-
Credit Score Categories and APR:
- Experian's data from the third quarter of 2023 is used to present average auto loan APRs based on credit score categories. The categories include super prime, prime, nonprime, subprime, and deep subprime, each with its corresponding APR range.
-
Ways to Get a Car with Bad Credit:
- The article provides practical advice for individuals with bad credit looking to secure a car loan. This includes exploring subprime auto loans, considering cash purchases, working to improve credit through strategic financial moves, checking for errors in credit reports, and, as a last resort, exploring buy here, pay here dealerships.
-
The Bottom Line:
- The conclusion stresses that while credit score is a crucial factor, it's not the sole determinant for loan approval. The article encourages readers to take proactive steps to improve their credit scores, highlighting that a bad score shouldn't impede future purchases.
In summary, the article covers a comprehensive range of topics related to credit scores and auto loans, providing valuable insights for readers at various credit levels.
