Guide: What Credit Score Is Needed To Buy A Car?

It's enjoyable to consider all the recreation and fun a new car offers. Before you can purchase your new ride, you need to consider your creditworthiness for a car loan.

Auto loans can come with a wide range of interest rates. A strong credit score can be pivotal in securing the best possible rates – learn how your score could impact your auto loan below.

How Do Credit Scores Affect Buying A Car?

A credit score is a number that ranges between 300 and 850 and which also summarizes the amount of risk you may present to your lender. The major credit bureaus, TransUnion, Equifax and Experian, gather information about your credit and financial history from creditors (like lenders and credit card companies) and use credit scoring models like VantageScore^® and FICO^® credit score to determine your probability of default.

Your credit score depends on several factors, including your:

• Credit history and length of accounts
• Unpaid debt
• Number of loan accounts
• Type of loan accounts
• Amount of available credit you use
• Credit applications
• Collections, foreclosures and bankruptcies 

What is the impact of credit score on securing an auto loan?

Put simply, the higher your credit score, the more favorable your interest rate terms are likely to be. A lower interest rate can help you get a lower monthly car payment. A larger down payment as a percentage of purchase price can also give you access to a better interest rate. You can easily monitor your credit score by signing up for Rocket Money^SM today.

Average Car Loan Interest Rates By Credit Score In 2023

What interest rate might you get based on your credit score? Take a look at the sample rates from Cars.com in the table below for an idea:

You may also see credit score ranges with these labels (VantageScore 3.0 listed):

• Very Poor: 300 – 499
• Poor: 500 – 600
• Fair: 601 – 660
• Good: 661 – 780
• Excellent: 781 – 850

Many borrowers want to know the average credit score by interest rate and how that will translate to their monthly payment. However, your credit score alone paints only part of the picture for your lender. Lenders also consider the following:

• Income and employment: Lenders typically ask for proof of income and steady employment to understand the full picture of your financial situation. They want to know about your work history to determine your ability to make auto loan payments.
• Loan-to-value (LTV) ratio: The LTV ratio explores the value of the car you want to buy against the vehicle's actual cash value (ACV). You can calculate LTV by dividing the loan amount by the car's value and multiplying by 100. For example, the LTV on a $40,000 loan amount divided by a $45,000 vehicle is about 88%. Your down payment can reduce your LTV.
• Debt-to-income (DTI) ratio: DTI refers to the amount of money you owe on existing loans or other financial commitments against your monthly income. Lenders use DTI to determine whether you can cover your monthly payments and your new car loan payment. Try to keep your DTI under 36%.
• Payment-to-income (PTI) ratio: PTI ratio refers to the ratio of the monthly loan payment against monthly income. In some cases, lenders may also add the estimated monthly cost of auto insurance to the monthly loan payment amount.

Used Car Loans Vs. New Car Loans

Interest rates might be different for used cars versus new cars. New cars, usually more expensive than used cars, means you'll have higher loan payments over a lengthier period. Used cars are cheaper and usually cost less over time due to the size of the loan principal. However, new car loans typically have lower interest rates because it's tougher for lenders to precisely value a used car compared to a new car. 

What’s The Minimum Credit Score To Buy A Car?

You're more likely to receive loan offers if you have a FICO^® auto score above 500. Lenders typically consider scores over 581 fair and scores under 580 are high risk.

You can qualify for an auto loan (for both new cars and used cars) with a lower credit score or even bad credit. A lower credit score might mean that you'll have a higher monthly payment due to higher interest rates, and might mean that you end up paying more for your car over time. Ultimately, your credit score affects what you end up paying.

You may have limited financing options if you have a low credit score. However, you can take action to improve your credit score to beef up your loan application.

What’s A Good Credit Score To Buy A Car?

In 2022, borrowers with the highest credit scores grabbed lower interest rates.

According to the Q4 2022 Experian State of the Automotive Finance Market report, in quarter four of 2022, people who got new car loans had an average credit score of 738, and those who got used cars averaged 678.

However, the higher your score, the better – a good credit score is better than a deep subprime credit score for the best percentage rate on your auto finance loan.

How To Get A Car Loan With Bad Credit

If you have poor credit (credit scores at 450 and lower) consider taking steps to get a car loan, including the following:

1. Check your credit report. You can get a free credit report from Experian, Equifax and TransUnion once yearly. Get a copy to check for errors, including accounts never opened, debt already resolved and more. Get inaccurate information removed from your credit to increase your score.
2. Improve your credit. Pay your credit card balances, student loans and other bills on time, catch up on past due accounts, limit credit and avoid applying for new lines of credit.
3. Pay cash for a car. Consider paying cash if you have money set aside for a car. Car purchasers don't have to get a car loan if they pay cash. Ensure that you have room in your budget and can preserve your emergency fund when you purchase a car with cash. It's a personal finance decision, but an important one. You could also consider a less expensive car.
4. Shop around. The first car you come across might not be the one you land on. Consider less expensive cars, shop around for the right price and consider multiple offers. You can also consider refinancing your car later down the road. Refinancing can also help you qualify for better interest rates.
5. Co-sign the loan. A co-signer can help you get a loan with a better interest rate. A relative or partner with great credit can help you secure that better interest rate. Your bank, credit union or other lender can give you information about loan terms, co-signer information, ways to avoid a higher interest rate, etc.

FAQs: Credit Scores And Buying A Car

Take a look at a few frequently asked questions about buying a car.

What is an acceptable credit score to buy a car?

There's no one-size-fits-all answer to this question because your ability to get a car loan can depend on several factors beyond your credit score. Lenders typically consider scores over 581 – lenders may consider scores under 580 high risk, though each lender has different requirements.

Can I get a car with a 500 credit score?

At a 500 credit score, you're in "deep subprime territory." It's still possible to get a car with a 500 credit score, though you're more likely to get a loan if your score is above 500. Check with your lender to determine your options, including whether you should work to improve your credit score before you finance a car.

Can paying a car loan improve my credit score?

Yes, paying a car loan on time can improve your credit score. Your auto loan lender may share your excellent payment history with the credit bureaus and therefore improve your credit score. Creditors who report to the credit bureaus usually do so every 30 – 45 days, or according to their own schedule. However, reports usually don't go to all three credit bureaus simultaneously.

Should I pay my car loan off early?

Can paying off debt early hurt your credit score? The answer is no, paying off car debt will not hurt your credit score. In fact, paying off your car loan early may help improve your credit score a small amount but may not significantly improve your score. However, it can improve your long term creditworthiness.

The Bottom Line: Building A Good Credit Score To Get A Loan Can Lower Your Interest Rate

You can get car loans with a credit score lower than 450, but with that could come an interest rate of upwards of 20%. On the other hand, someone with a credit score of 750 or higher might qualify for a lower interest rate.

Other factors beyond your credit score come into play when considering you for a car loan, including unpaid debt, lengths of accounts, available credit, credit applications, etc. Your lender can help you determine the credit score you need to buy a car.

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