Planning to purchase a new vehicle often requires securing an auto loan given the current average price of over $47,000 for new cars in the US.
When applying for an auto loan, whether through a dealership or a bank, a crucial step is undergoing a credit check. This article outlines what credit score is typically necessary for car loan approval and offers insights on improving the chances of approval for those with less than perfect credit.
What Credit Scores Do Auto Lenders Use?
Auto lenders evaluate potential borrowers using different credit scores, with two prominent scoring models being FICO and VantageScore.
- FICO Scores range from 300 to 850 and are widely recognized.
- VantageScore, a newer competitor, also ranges from 300 to 850.
Furthermore, lenders may use specialized scores like the FICO Auto Score, designed specifically for auto loans, which considers different factors compared to general credit scoring models.
While many car dealerships rely on the FICO Auto Score, not all do, making it essential for consumers to inquire about the scoring system used by their lender.
What Is the Minimum Score Needed to Buy a Car?
Lenders categorize customers based on credit scores, with prime credit (661 or higher) typically required to qualify for conventional car loans.
Borrowers with scores in the prime range or better have higher chances of loan approval.
How to Buy a Car with a Poor Credit Score
Individuals with credit scores below the prime range may face challenges in obtaining financing, but options exist for securing auto loans with fair or poor credit:
1. Be willing to pay a higher interest rate
Applicants with poor credit often receive loans with higher interest rates compared to those with better credit profiles.
2. Go to a dealer that specializes in buyers with poor credit
Seek dealerships catering to buyers with poor credit, providing in-house financing for used vehicles, though at higher interest rates.
3. Apply for a loan with a co-signer
Consider applying for a car loan with a co-signer if your credit score is suboptimal, as this may improve your approval chances and interest rates.
If I use a co-signer, will I get the same rate that they would alone?
When applying for a loan with a co-signer, both parties’ credit scores are considered. While the rate may not match what the primary applicant could secure alone, approval odds and interest rates are generally more favorable.
Can I buy a car with no credit?
Buying a car without a credit history is challenging, often requiring a co-signer or financing from select dealerships specialized in such cases.
Are interest rates the same on new vs. used cars?
Interest rates for used vehicles typically exceed those for new cars. In Q2 2022, average new car loan rates were lower than used car rates.
The Bottom Line
Understanding your credit score’s impact on car financing is crucial. Before car shopping, obtaining quotes from various lenders can help secure the best loan terms and determine a suitable budget.
Start by checking your credit score for free through different sources and compare loan offers from banks and credit unions for a well-informed car buying experience.