Wouldn’t it be nice to buy a car with cash so you won’t have to worry about credit scores, interest rates, and monthly payments? Maybe later on down the line, you’ll be able to dole out a wad of cash to buy a car outright. But for now, you’ll have to settle for financing in to purchase a reliable ride that won’t break down on you within weeks of buying it.
And unless you finance your car with a buy here pay here or tote the note dealer, your credit rating will play a huge factor in whether or not you’re approved and the terms of your financing.
Curious to know what credit score will get you the best possible interest rate? Or are you worried that your credit score is too low to get approved for an auto loan? Read on to discover what credit score is needed to buy a car.
What’s the Lowest Credit Score Lenders Will Accept?
There are auto lenders that cater to consumers from varying backgrounds, from bad to excellent credit. And if you don’t have any credit history, you could still be in luck. Ultimately, it’s up to the lender to decide if their willing to take a risk on you.
But here’s the catch: the lower your credit score, the higher the interest rate you’ll qualify for (if you can get approved for a loan). It’s all a matter of risk to the lender, and they want to make sure they cover their butts in case you default on the loan.
If your credit score is 549 or below, you may find it extremely difficult to qualify for an auto loan without offering to make a large down payment. And even if you agree to put a large sum of cash down, you could still be hit with an exorbitant interest rate. So, it may be best to work on improving your credit before applying if time is on your side. And even if you’re pressed for time and need a ride soon, it’s worthwhile to do your legwork to find lenders that are known to assist borrowers with less than perfect credit.
Otherwise, you’ll be stuck with steep payments or forced to resort to a buy here pay here dealer that doesn’t check credit but offers auto loans that are loaded with fees.
What Score Is Ideal for the Best Auto Loan Terms?
Again, it depends on the lender you’re dealing with. An excellent credit score of 740 or better will boost your chances of securing the lowest rate possible. But if you’re slightly below this figure, you could still be in luck if the dealer’s in-house financing department or your financial institution is offering special incentives.
How Much Should You Expect to Pay for Your Auto Loan
As mentioned earlier, your credit score will greatly impact the terms and interest rate the lender offers you. Wondering where your credit score falls on the spectrum? Here are the credit score ranges:
- Excellent Credit: 720-850
- Good Credit: 690-719
- Fair Credit: 630-689
- Poor Credit: 550-629
- Bad Credit: 300-549
Scenario: Excellent Credit
| Loan Amount | Loan Term | Interest Rate | Monthly Payment | Interest Paid Over the Life of the Loan | Total Cost of the Loan |
| $36,000 | 36 months | 4% | $1,063 | $2,263 | $38,263 |
| $36,000 | 48 months | 4% | $813 | $3,017 | $39,017 |
| $36,000 | 60 months | 4% | $663 | $3,780 | $39,780 |
| $36,000 | 72 months | 4% | $563 | $4,552 | $40,552 |
Scenario: Fair Credit
| Loan Amount | Loan Term | Interest Rate | Monthly Payment | Interest Paid Over the Life of the Loan | Total Cost of the Loan |
| $36,000 | 36 months | 9% | $1,145 | $5,212 | $41,212 |
| $36,000 | 48 months | 9% | $896 | $7,001 | $43,001 |
| $36,000 | 60 months | 9% | $747 | $8,838 | $44,838 |
| $36,000 | 72 months | 9% | $649 | $10,722 | $46,722 |
Scenario: Bad Credit
| Loan Amount | Loan Term | Interest Rate | Monthly Payment | Interest Paid Over the Life of the Loan | Total Cost of the Loan |
| $36,000 | 36 months | 17% | $1,283 | $10,206 | $46,206 |
| $36,000 | 48 months | 17% | $1,039 | $13,862 | $49,862 |
| $36,000 | 60 months | 17% | $895 | $17,682 | $53,682 |
| $36,000 | 72 months | 17% | $801 | $21,662 | $57,662 |
Before You Apply for an Auto Loan…
Shopping for a new car is way more fun than sorting out financing. But that doesn’t mean that you should simplify the process by going with the first lender that approves you. Doing so could be a huge and costly mistake. Instead, do the following before applying for an auto loan:
Check Your Credit
Instead of waiting until you apply to see where you stand, you can alleviate stress by checking your credit out beforehand. Start by visiting AnnualCreditReport.com to retrieve your credit reports from the three credit bureaus.
Rectify Any Credit Issues
Review the contents thoroughly and file disputes with Experian, Equifax, and TransUnion if needed. This is important as your credit score should accurately reflect your credit history, and errors or untimely information could be bringing your score down.
Decide on a Budget
When deciding on a budget for your new ride, the monthly payment isn’t all you have to think about. Beyond gas, insurance, auto maintenance, and repairs, you must also consider all your other expenses. The idea is not to become so overextended that the car adds more of a burden to your finances.
To figure out how much you can realistically afford to spend on a car, whip out your budget and run the numbers. If you don’t have one, you can learn how to get started here. And once you reach a figure you’re comfortable with paying each month, use an auto loan calculator to get an idea of what that would like in terms of the purchase price based on the desired loan term.
The Next Steps…
Ready to start applying? Narrow down your list of top lenders and do the following:
Get Pre-Approved
No need to worry about your credit score getting dinged from auto loan shopping. FICO recognizes multiple inquiries for a particular type of loan as a form of rate shopping and won’t count the hits against you if you decide on a loan in a set window of time.
You can also prevent hard inquiries from landing on your credit report by using the pre-qualification tool offered online by most lenders. They result in a soft inquiry and provide realistic quotes of loan terms you can expect should you decide to move forward with their company.
Negotiate the Terms of Your Auto Loan
Don’t quite agree with the terms of your auto loan? Perhaps you received a much lower rate quote elsewhere or would like a different payment period? Speak up and express your concerns to the lender. They may be willing to make adjustments in an effort not to lose your business.
Drive Away In Your New Ride
Once the loan terms are suitable, it’s time to review the documents and sign on the dotted line. But during your review, it’s integral that you address any questions or concerns you may have. If you’re confused about something, now’s the time to speak up or it could cost you hundreds if not thousands of dollars later on down the line.
The Bottom Line
There’s no hard and fast rule on what credit score is needed to buy a car. But having a higher credit score is much easier than your wallet than applying when your score is in the trenches. And if you don’t receive loan offers that work for you, try negotiating with the lender, offering a larger down payment, or working on building your credit until your FICO Score is higher.
