If you’re planning to buy a new car, you’ll 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. Here’s what credit score you’ll need to be approved for a car loan—and what you can do if your credit is less than perfect.
- Your credit score is a major factor in whether you'll be approved for a car loan.
- Some lenders use specialized credit scores, such as a FICO Auto Score.
- In general, you'll need at least prime credit, meaning a credit score of 661 and up, to get a loan at a good interest rate.
- If you have poorer credit, you can still get a loan, but you will probably have to pay more for it or else find a cosigner.
What Credit Scores Do Auto Lenders Use?
You don’t have just one credit score, but several of them. The scoring models use the same basic information from your credit reports but weigh certain factors differently. The two major scoring models are:
- FICO. The best-known and most widely used scoring company. FICO scores range from 300 to 850.
- VantageScore. A newer competitor to FICO. While earlier versions of the VantageScore ranged from 501 to 990, the latest VantageScore goes from 300 to 850, the same as FICO.
The major scoring models can also provide more specialized scores for particular purposes. For example, FICO offers the FICO Auto Score, an industry-specific credit score intended for auto lenders. The FICO Auto Score uses a different weighting system from other FICO scores, with credit utilization having a bigger impact and isolated late payments—such as a one-off mistake—having a lesser one. To further complicate matters, there are multiple versions of the FICO Auto Score.
Many car dealerships rely on a FICO Auto Score, but not all do. If you’re not sure, and are curious, ask your lender which scores they check before consenting to a credit check.
What Is the Minimum Score Needed to Buy a Car?
When lenders review your auto loan application, they look at your income and credit score. Lenders divide customers into categories based on their scores, such as:
- Super Prime: 781 to 850
- Prime: 661 to 780
- Nonprime: 601 to 660
- Subprime: 501 to 600
- Deep Subprime: 300 to 500
In general, lenders look for borrowers in the prime range or better, so you will need a score of 661 or higher to qualify for most conventional car loans.
How to Buy a Car With a Poor Credit Score
If your score is below the prime range, you may still be able to get an auto loan—but it could be harder to obtain and more expensive. Here are three options for financing a car if you have fair or poor credit:
1. Be Willing to Pay a Higher Interest Rate
If you have poor credit, lenders see you as a riskier applicant. You may be able to get a car loan, but you'll likely pay a much higher interest rate than someone with good or excellent credit.
For example, the average interest rate for prime borrowers purchasing new cars was 4.21% in 2020. For nonprime borrowers, the rate was 7.14%, while it was 13.97% for deep subprime borrowers.
That higher rate can add substantially to your total loan cost. For example, if you financed $37,000 with a four-year loan at 4.21% interest, you'd have an $839 monthly payment and would pay $3,268 in total interest.
But if you financed that same amount and only qualified for a four-year loan at 13.97% interest, your payment would jump to $1,011 per month. And, you’d pay $11,505 in total interest—a difference of $8,237.
|The Better Your Credit Score, the Lower Your Interest Rate|
|Prime Borrower||Nonprime Borrower||Deep Subprime Borrower|
|Loan Term||48 Months||48 Months||48 Months|
2. Go to a Dealer Specializing in Buyers With Poor Credit
If you cannot qualify for a loan at a traditional dealership, you may be able to get financing from one that specializes in buyers with poor credit. Typically advertised as "buy here, pay here" dealerships, they offer in-house financing for used vehicles.
However, these dealers tend to charge very high interest rates to offset the risk of lending to borrowers with lower scores. As of 2020, the average interest rate offered by independent dealers to deep subprime borrowers was 21.31%.
3. Apply for a Loan With a Cosigner
If your score is in the nonprime to deep subprime range, you might consider applying for a car loan with a cosigner. A cosigner is someone, such as a family member, who is willing to apply for a loan with you and, ideally, has good to excellent credit. A cosigner shares responsibility for the loan, reducing the lender’s risk. You’re more likely to qualify for a loan and get a lower interest rate than if you applied on your own. But if you're unable to make the loan payments, your cosigner will be stuck with the bill.
If you shop for a loan before you shop for a car, you'll have a better idea of how much you can afford to spend.
The Bottom Line
Whether you’re looking for a new car or a used one, your credit score plays a big role in your financing options, so it's worth knowing where you stand. You can get your credit score for free from some credit card companies and online sources.
Before heading to the dealership, it's also a good idea to obtain auto loan quotes from one or more banks and credit unions. That can help you find the best loan deal and give you some extra leverage in bargaining with the dealer. It could also help you decide how much you can afford to spend on a car.
Cision PR Newswire. "Average New-Vehicle Prices Continue to Surpass $40,000, Up More Than 5% in January 2021, According to Kelley Blue Book." Accessed April 27, 2021.
United States Public Interest Research Group. "Driving Into Debt." Accessed April 27, 2021.
VantageScore. "How to Implement." Accessed April 27, 2021.
FICO. "FICO Scores Versions." Accessed April 27, 2021.
Experian. "Finance Market Report – State of the Automotive Finance Market," Page 3. Accessed April 27, 2021.
Experian. "Finance Market Report – State of the Automotive Finance Market," Page 22. Accessed April 27, 2021.
Experian. "Finance Market Report – State of the Automotive Finance Market," Page 34. Accessed April 27, 2021.
Consumer Financial Protection Bureau. "I Was Asked to Co-Sign Financing for a Car. What Am I Being Asked to Do and What Does This Mean for Me?" Accessed April 27, 2021.