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There’s no set minimum to buy a car, but a good credit score will help you in more ways than one.
You’re probably aware that having favorable credit can make it easier to borrow money for a car, but do you know just what sort of credit score you’ll need? And if you have a lower credit score, do you know how much extra it’ll cost you, or what your options are?
Navigating the credit scene can be confusing, and doubly so because there aren’t any set standards in the car-buying world. It’s possible to find lenders who’ll give you the funds no matter your credit score, but that doesn’t always mean it’s the best idea. We’ll help you sort things out so you know what to expect, no matter what your credit score is today.
Most people consider anything from 670 or higher to be a “good credit score” because that’s the FICO® definition, but that’s not the full picture.
The truth is that there isn’t any one universally-agreed-on definition of what makes up a high credit score. Different lenders have different credit score cutoff points, so what one lender considers a favorable score might not be so hot with another lender.
Indeed, “good credit” and “bad credit” are more colloquial terms than anything. The way most people use them in everyday life, you either have good credit or you don’t – but the terms are really more relative than that. If you have an 800 credit score, you and your lender will probably just agree that you have excellent credit, and you’re likely eligible for the best rates.
For example, here’s the full rundown of credit score ranges that FICO® uses:
However, Experian, which publishes extensive research on the automotive finance market, uses a different scale:
To make matters even more complicated, FICO® has lots of different credit scoring models. It’s currently up to the ninth iteration of its base FICO® Score. However, the score that most auto lenders use is the FICO® Auto Score, and there are also nine versions of these, any one of which your lender might use.
Finding out your FICO® credit score for free is tough enough, but you might have to pay money to see your FICO® Auto Score. If you’re trying to find out your credit score in anticipation of applying for a new car loan, however, it’s probably good enough to focus on your regular FICO® score or your VantageScore. If you have a good credit history, it’ll show in both scores.
There isn’t any official minimum credit score you need to get a car loan. No matter your credit score, it’s possible to find an auto loan if you meet the other requirements. That’s both good news and bad news.
On one hand, that means most people are able to get a car if they can meet a lender’s loan qualifications. On the other hand, you could pay higher interest rates with a lower credit score.
Here are the credit profiles and average interest rates for all of the cars successfully financed during the second quarter of 2022, according to Experian. To put these numbers into context, we’ll see what these interest rates would mean for a hypothetical $20,000 car loan amount, with loan terms of five years:
| Percent of Borrowers | Credit Type | Credit Score Range | Average Loan Interest Rate | Monthly Payment | Total Interest Paid Over Life of Loan |
| 20% | Super Prime | 781 – 850 | 2.96% | $359 | $1,541 |
| 46% | Prime | 661 – 780 | 4.03% | $368 | $2,116 |
| 18% | Nonprime | 601 – 660 | 6.57% | $392 | $3,519 |
| 14% | Subprime | 501 – 600 | 9.75% | $422 | $5,349 |
| 2% | Deep Subprime | 300 – 500 | 12.84% | $453 | $7,205 |
As you can see, if you have an excellent credit score above 781, you’d likely pay $94 less with every car payment and you’d save $5,664 in interest by the time you pay off the car. Paying higher interest rates could make it more likely for you to default on the loan.
Aside from the fact that some lenders are happy to offer you high-interest car loans, the reason it’s possible to get a car loan with a lower credit score is that lenders look at many other factors, as well.
That also goes the other way, too: Just because you have a higher credit score doesn’t mean you’re guaranteed to get a loan. It’s quite possible to have favorable credit, in fact, and still be denied based on other factors.
Here are some of the other things you’ll want to pay attention to besides your credit score if you’re thinking about getting a car loan, along with how to improve each factor:
Some banks and credit unions might charge less than other auto lenders and dealerships. That doesn’t mean you should exclude other lenders, but just keep it in mind as you shop around.
Lenders want to make sure you’ll be able to afford the car loan payments so that they can get their money back, and so they’ll consider your income. If you’re not earning very much income, you might need to find ways to boost your take-home earnings, save up more money before your car purchase, or apply with a cosigner (more on that below).
Not only does your lender want to make sure you’re bringing in enough money each month to make the payments, but they also want to know if you can afford it given your other obligations. That’s why they’ll consider your debt-to-income ratio, which is basically what percent of your gross income is taken up by other debt payments each month.
Aiming for a debt-to-income ratio under 35% is best, although many lenders cap the maximum debt-to-income ratio at 50%. (As always though, it’s possible to find exceptions.) If your debt-to-income ratio is too high, you’ll need to either increase your income or pay off some of your debt to improve it.
The amount of money you borrow in relation to how much your car is worth is known as the loan-to-value (LTV) ratio. It’s mostly influenced by your down payment amount — the more of a down payment you can make, the less you need to borrow, and the smaller your LTV ratio.
Many personal finance experts recommend at least a 20% down payment for new cars and a minimum 10% down payment for used cars.
Some lenders will approve you for a 100% LTV ratio (i.e., a no down payment loan) if you have a higher credit score. However, this is not a good idea because then you’re borrowing more money — and paying more interest — than you might need. Lenders might charge you a higher interest rate on larger loan amounts or longer loan terms, too.
In addition, if you have a low credit score or other factors working against your favor, making a larger down payment (i.e., a smaller LTV ratio) might be enough to sway them into approving your loan when they otherwise might deny it.
If you don’t meet a lender’s requirements to get an auto loan on your own, you might be eligible if you have a cosigner with a better financial and credit profile. It’s not a decision to take lightly for either of you because you can put a lot of financial strain on someone and ruin their credit if you don’t repay the loan perfectly.
If you’ll be refinancing your car loan to get a lower interest rate or a lower monthly payment, two important things your lender will look at are how much you owe on your car loan now compared to its worth, and your payment history as listed on your credit report.
If you financed a new vehicle, it’s quite common to owe more than your car is worth for the first few years, especially if you made a small down payment. Regardless, lenders aren’t likely to lend you more money than your car is worth. In that case, paying down your auto loan a bit more can help you improve your odds of refinancing.
In addition, lenders will look at your past payment history to see how well you’ve done at paying off your current loan. As long as you’ve made at least the past six payments on time, you should be OK, although zero late payments are always best. To remember your payments, it’s always a great idea to sign up for autopay on your loan.
You may not have gotten the best rate on your auto loan to begin with, but that doesn’t mean you have to stick with that debt necessarily. If you’re fairly confident that you’ll improve your financial profile in the future, you can at least take heart that you might qualify for better loan rates on a refinance later on.
And if you’ve been paying off your auto loan for a while with perfect on-time payments, chances are your credit score has improved. Now might be a great time to see if you can qualify for a better rate than when you first purchased your car.
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