What Is the Minimum Credit Score for a Car Loan?

FT Contributor
Two people sitting at a table with car loan papers and money sitting on top of it. One person is handing the other a set of keys to a car.

Whether you have low credit or no credit, your credit score is essential to buying or financing a car. The good news is that there is no universal minimum credit score needed to obtain a car loan. Ultimately, the credit score you need to get a loan is determined by the lender. There is, however, a correlation between higher scores and lower interest rates. Lenders and dealers guaranteeing a loan or not requiring credit checks will often have high, predatory interest rates. Learn more about how your credit score can impact the car loan you’re eligible for, as well as interest rates and repayment terms.

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How Does Credit Affect Car Loan Interest?

Credit scores tell lenders how good you are with money. While there is no minimum credit score required for a car loan, the higher your credit score, the better. A higher credit score tells lenders that you are responsible with your money and monthly payments. In other words, lenders are more likely to trust someone with a higher credit score and may offer them the lowest interest rates. Here’s what else your credit score does to car loan interest rates:

  • If you have a low credit score, lenders are more at risk of you not paying them back. To offset the risk associated with poor credit scores, you’ll receive a higher interest rate.
  • If you have a credit score of 781 or higher, you can expect to get the lowest interest rate on a new or used car loan.
  • Most auto lenders don’t have specific down payments, but they will limit the amount of your loan based on your credit.
  • A hefty down payment can help offset high-interest rates on loans obtained by those with low credit scores.

Below is a look at the interest rates associated with various credit score ranges:

Credit Score Range New Car Loan Used Car Loan
781 to 850 4.19% 4.69%
661 to 780 5.01% 6.38%
601 to 660 7.91% 10.91%
501 to 600 12.17% 16.78%
300 to 500 14.88% 19.62%

Types of Credit Scores

When looking into your credit score for a car loan, it’s important to understand that credit scores are grouped into two types: prime and subprime. Technically there are more categories, but these are the two main groups that lenders use to classify potential borrowers. Typically, it’s much easier to obtain a car loan with prime credit than it is with subprime credit.

Prime Credit

Prime borrowers are viewed as those who are the least risk of defaulting on their loans.

This type of score is 760 and above, and it comes with many benefits. As a prime borrower, you’re able to receive the lowest interest rates, get approved for higher loan amounts, and take advantage of lower down payments.

Subprime Credit

Subprime credit scores are typically 580 and below. Credit scores this low are indicative of a person’s poor credit history, including delinquencies. Subprime borrowers can also have little to no credit history, making it difficult for lenders to know if they can trust the borrower. Subprime borrowers can fall into the “fair” or “very poor” categories, with scores ranging from 580 to 669 and anything lower than 580. On average, subprime borrowers can expect to see interest rates as low as 11% and as high as 19.61% on a car loan.

Steps to Take if Your Score Is Too Low

If your credit score falls in the subprime category, it could be keeping you from getting a low-interest rate. Fortunately, there are steps to take to improve your credit score and the interest rate you receive on a car loan.

Make a Down Payment

Putting down a large sum of money towards a down payment can help alleviate the burden of high-interest rates. Doing so also makes you look like a better borrower to the lender. Plus, large down payments will help lower the loan term and ultimately the monthly payment and overall interest.

Build Credit

The best thing you can do to improve your credit score is to build credit. This takes time, but it is very helpful in the long run. Keep your credit card spending low and always pay your bills on time. Avoid opening a new line of credit unless you absolutely have to, as this can negatively affect your credit score. No matter what you hear, there are no overnight fixes to credit scores. Stay away from any company that advertises things like “improve your credit score for a car loan,” as these are often quick fixes that will actually do more damage in the long run.

Consider a Co-Signer

If you have poor credit, lenders will allow a cosigner on your car loan. Having a cosigner who is viewed as a prime borrower can help you obtain a loan for a larger amount and also help you get a lower interest rate. However, cosigning can be risky, so make sure you do it with someone you trust. If you obtain a cosigner, ensure that you’re able to repay your loan back within the terms. It’s not okay to take advantage of someone else’s credit or income, and not paying your loan can be detrimental to your co-signer’s credit score as well as your own.

Shop Around

Like shopping for a car, it’s best to shop around and get quotes from multiple lenders. This allows you to get the lowest interest rate possible on your car loan. Go to other dealerships who might be willing to make a deal with you. Some can offer better deals than others, but make sure to read the terms and conditions of the loan so you don’t get swindled. Remember that even the slightest difference in your interest rate can have a significant impact on how much you pay for your car overall.

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