The Minimum Credit Score To Buy A Car
Most auto lenders use the FICO credit score when evaluating car loan applicants, which ranges from 300 to 850. Knowing your credit score before applying for a car loan is a great way to get prepared. Here’s a rough breakdown of what constitutes good and bad credit according to FICO:
- 800 and above: Excellent credit
- 740 to 799: Very good credit
- 670 to 739: Good credit
- 580 to 669: Fair Credit
- 579 and below: Bad credit
There are many different ways for you to get your credit score. You can get it directly from FICO or any of three major credit bureaus for a small fee. As for free credit scores, many different credit card providers give their cardholders unlimited access to their FICO score, while many third-party sites and companies do the same.
However, keep in mind that some of the free scores available to you won’t be your FICO score, as there are many different credit scoring models in circulation. Because most auto lenders use your FICO credit score, we’d advise that this is the score you try to get your hands on.
Higher Scores Mean Better Rates But People With Poor Credit Also Have Options
If youre planning to buy a new car, youll most likely need an auto loan to help pay for it. With the average cost of a new vehicle exceeding $40,000 today, the great majority of buyers in the United States do. Whether you apply for a loan through the dealership or at a bank, the lender will run a credit check on you as part of the process. Heres what credit score youll need to be approved for a car loanand what you can do if your credit is less than perfect.
Better Credit Better Loan
A credit score in the mid-600s is considered average for a car loan and will result in mediocre loan terms. Credit scores between 680 and 720 are considered to be good. A credit score above 720 is considered excellent and will result in a low-interest car loan.
The credit score range you fall into can tell you a lot about the car loan offers you can expect to get. Naturally, the higher your credit score, the better the loan term/rate you should expect to receive. Everyone wants access to low-interest rates, low monthly payments, and larger loans. The higher your credit score, the easier it will be to get these ideal loan offers. In addition, a higher credit score will allow you to get approved quickly and easily.
But, just because you can access lucrative offers, doesn’t mean you should automatically accept them. It is still important to consider your current financial position and future financial goals. Having a great credit score leads to better deals, just don’t let that stop you from making a smart and educated financial decision.
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Will I Be Able To Get A Car Loan With A Bad Credit Score
If your credit score is lower than 670, there is no need to panic- you can still get back on the road! A 2016 report from the Financial Consumer Agency of Canada noted that approximately 25 percent of all vehicle financing went to customers who were considered non-prime , based on their credit score.
The table below from Bankrate.com shows the average interest rate by credit score for Americans who secured an auto loan at the end of 2016 :
As you can see, customers whose credit scores were lower were able to receive vehicle financing. Unsurprisingly, based on the level of risk involved, customers who have a credit score that is 660 or lower should be prepared to pay higher interest rates than their prime and super prime counterparts.
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Keep Credit Card Accounts Open
Dont close old credit cards. If you have old credit cards that you arent using, its still a good idea to keep them. Closing old accounts can hurt your score by shortening your average account age and reducing your overall credit limit.
When youre ready to buy a car, deal with that first before you consider financing for anything else. Its also best to do your rate shopping relatively quickly so it doesnt look like youre applying for a bunch of new loans.
Remember, no matter how tempting it may be to go with a fancier car, you have to be able to afford your monthly payments. After all, being late or overdue will only hurt your credit score and your chances of better rates on future loans.
Used Car Loans And Financing With Ridetime
What do you do when you get denied for a loan or what is offered to you is way up your budget? As mentioned, you keep looking. RideTime has a vast network of lenders where youll get approved regardless of credit history.
RideTime can provide you with a used car even because of bad credit history when other dealerships cant. And even if you have bad credit from divorce, repossessions, or bankruptcy youll most likely be approved as long as you can provide the requirements.
Cars are a necessity. Suppose you have a good credit score kudos to you. Youll have no problems in having credit approved. However, if youve got bad credit, dont fret. RideTime can provide you with a quality used car even if you have the minimum credit score for a car loan.
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How Does Your Credit Score Impact Your Loan Costs
Your auto loan credit score has a big impact on how much you pay for a loan. Take a look at this chart of the average car loan interest rate by credit score for the second quarter of 2022, according to Experian:
|Average APR for new cars||Average APR for used cars|
The difference between 20.58% and 3.66% might not seem that huge at first, but lets look at how that affects how much interest you pay over the life of the loan. If you buy a car for $25,000, make a $5,000 down payment and pay it off over five years, youll pay $1,916 in interest by the time that car is paid off with good credit.
However, with bad credit, youll end up paying a staggering $12,181 in interest by the time you paid it offover half as much as the car itself costs.
Avoid Applying For Other Credit/loans
If you know youâre planning to buy a car soon and will need financing, donât apply for any other credit cards or loans for at least six months before you plan to buy your car. Each time you apply for financing, itâs logged in your credit report and will most likely ding your score. Too many inquiries is a red flag to lenders that youâre likely living outside your means which means theyâre less likely to get their money back.
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How To Improve Your Credit Score And Increase Your Chances For Approval
Before applying for a car loan, you need to know your credit score and do whatever you can to boost it if itâs low. You can further increase your chances of approval by researching the car loan market and lenders you’re interested in working with. More often than not, choosing the right lender is the first step in getting approved for the car loan you need.
If you’re interested in improving your credit score before applying for car financing, make sure that you:
- Check your credit score to see where you stand
- Contact a credit bureau to fix any mistakes you find in your credit report
- Pay off as much outstanding debt as you can afford
- Start making on-time, full and consistent payments towards other debt
- Gather multiple car loan offers, compare, and negotiate with lenders
- Consider saving up a down payment of 20-percent
- Consider your budget, specifically how much you can afford to pay in car loan payments and car insurance
Depending on the state of your credit, trying out even a few of these can help give your credit score the boost you want.
How Much Will Bad Credit Affect Your Car Loan At Carmax
Weve already established that the best financing deals at Carmax fall to individuals with credit scores in the prime tier and above. But what does that mean for people in lower tiers? Just how much of an impact will their challenged credit score have on their loan deal?
Bad credit affects one key element of your loan deal: the interest rate. As a general rule, the lower your credit score, the more youll pay in interest. Carmax Auto Finance has several interest categories that determine your loans applicable rate depending on your credit score.
- Individuals with excellent credit scores get the most favorable interest rates of 3.15% to 4.5%, while those with challenged credit score profiles have to make do with rates as high as 14% to 24%.
- The middle category is reserved for people with average credit scores. People in this category pay 4% to 18% in interest.
As you can see, your credit score will significantly impact the interest rate you get. If your credit score isnt where you want, dont throw in the towel yet. There are several things you can do to get a better rate.
Lets review what those are in the next section.
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What You Will Need To Close The Auto Loan
There are two main ways to get an auto loan.
Preapproval by bank or auto lender: Similar to a mortgage preapproval, this method gives you an idea of what type of auto loan you qualify for before ever stepping onto the car lot.
Your dealers partner lenders: This allows you to conveniently take care of everything at the car lot but may end up being more expensive.
Regardless of which route you take, youll need to gather some paperwork to submit with your application.
How To Check All Versions Of Your Fico Auto Score
If you want to finance a car with an auto loan, signing up for one of the FICO® Basic, Advanced or Premier credit monitoring services can help.
All three FICO Basic, Advanced and Premier plans offer access to 28 versions of your credit score so you can use it when applying for any type of credit, including auto loans, mortgages and credit cards. These three services will also alert you of potential fraud, such as someone opening a new loan in your name or a sharp spike in your credit card balance.
If all you want are the multiple versions of your FICO Score, sign up for Basic, the lowest tier, to save more money each month. Learn more about the differences between each FICO credit monitoring service.
$19.95 to $39.95 per month
Experian for Basic plan or Experian, Equifax and TransUnion for Advanced and Premier plans
Yes, for Advanced and Premier plans
Yes, up to $1 million
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Whats The Average Credit Score To Finance A Car
During Q4 of 2018, the average credit score of borrowers who received financing for a new car was 718, as well as 659 for a used car. During Q3 of 2018, borrowers who received financing for a new car had an average credit score of 714, while those who received financing for a used car had an average of 655. Generally, the higher the credit score, the more opportunities are available for lower interest rates and fees. Credit scores are separated into the categories below:
- Superprime: 781 to 850
- Deep Subprime: 300 to 500
Use A Secured Credit Card
Using credit cards to build up a reliable payment history is one of the easiest ways to build your credit score. The problem is, if you have poor credit, it can be difficult to be approved for a credit card in the first place.
Thats where secured credit cards come in. They are designed to help riskier borrowers prove themselves and build credit. The catch is youll have to provide a cash security deposit that your card issuer will take if you dont pay your bills.
If that doesn’t sound like a good deal, a few and instead focus on your income and spending based on your bank history. That way you can start building your credit without putting up collateral.
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What Credit Score Do Car Dealers Use
Dealerships typically rely on the FICO Credit Score system when assessing your suitability for a loan, which is why they may have a different score for you than you expected. Unlike the standard credit score, which ranges from 300 to 850, the FICO system goes from 250 to 900.
In addition to having a larger range, the FICO system is more sensitive to specific aspects of your credit history. For example, it pays a lot of attention to whether you’ve made late payments, and the mix of your credit between credit cards, mortgages, and loans. It is also sensitive to high credit card usage and any outstanding debt on your credit lines.
The Three Rules Of Car Financing
The rule of thumb when it comes to smart auto financing is the 20/4/10 ratio.
According to this rule, when buying a car, you should put down at least 20%, you should finance the car for no more than 4 years, and you should keep your monthly car payment at or below 10% of your gross monthly income.
Why is the 20/4/10 ratio smart? Heres why:
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Minimum Credit Score For A Car Loan
Auto lenders use your credit score to determine if you qualify for a car loan, and also to decide the other terms of your loan, including the interest rate. Car buyers with better credit receive better loan terms than those with bad credit, with everything else being equal.
While auto lenders do have a minimum credit score to buy a car, the specific number varies. It depends on many different factors, such as your overall borrowing profile and the loan programs a particular lender offers.
The information on your car loan application along with your credit history gives lenders a better sense of your overall qualifications as a borrower. Things like your income in relation to your monthly bills, the size of your down payment, and the amount you want to finance all play a role in the approval process.
Then, it comes down to the qualifications the lender uses. If approved, lenders place you into a lending tier, with better tiers offering more favorable terms. Where your score falls on the range while accounting for other factors in your overall profile determines which tier you qualify for. In turn, the tier you qualify for determines the interest rate, the loan terms you’re offered, how much you’re allowed to borrow, and the down payment amount you may need.
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 from Experian to review. Look for areas where you can improveespecially 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:
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How To Check Your Credit Score & Report In Canada
Many people think if you pull your credit report from the two major credit bureaus TransUnion or Equifax, that it will contain your credit score also. This is not always the case. But its still essential to check your credit report for errors and correct reporting, to ensure your credit score is always accurate. Your credit reporting agency will provide you with a monthly copy for free. Requesting this report on a monthly basis will not affect your credit score.
Requesting your credit score is often separate from your credit report. Both may charge a fee for your request. Its also important to note that each credit reporting agency uses its own bespoke scoring algorithm, which may differ from each other. Learn more about why your credit score may vary depending on where you check here.Its important to note, you can often check your credit score for free through your bank, financial institution or any significant financial technology website such as .