What is a Good Credit Score to Buy a Car?
Auto loans are one of the most accessible forms of debt in America. It usually doesn’t take too much to qualify for one, as evidenced by our nation’s car debt increasing by $80 billion in 2020, despite the pandemic’s negative impact on consumer finances.1
However, that doesn’t mean that it’s a good idea to take out a car loan when you have poor credit since they can have very high-interest rates. To avoid paying too much interest, you should aim for a credit score of 660 or higher when buying a car.
Other types of credit have a minimum credit score below which most lenders will no longer provide funding. For example, you won’t qualify for most types of mortgages with a credit score of 600 or lower.
In contrast, very few people have credit scores that are low enough to dissuade shady car dealers from giving them an auto loan. That means there’s an immense difference between the best available interest rate and the worst.
Now, let’s dive deeper into what exactly is a good credit score to buy a car, the importance of the 660 credit score threshold, and whether it’s worth it to push even higher.
Average Car Loan Interest Rate by Credit Score
|Average New Car Rate||Average Used Car Rate|
|Deep Subprime Borrower: 350 to 579||14.39%||20.45%|
|Subprime Borrower: 580 to 619||11.92%||17.74%|
|Nonprime Borrower: 620 to 659||7.65%||11.26%|
|Prime Borrower: 660 to 719||4.68%||6.04%|
|Super Prime Borrower: 720 to 850||3.65%||4.29%|
As you can see, the average car loan’s interest rate swings wildly depending on your credit score range. When purchasing a new car, the difference between the average rates at each end of the credit spectrum is 10.74%.
The difference is even more significant for borrowers who buy a used car, for which the discrepancy is a whopping 16.16%.
How Much Extra You Pay with a Low Credit Score
While the principal balances and repayment terms are much lower for an auto loan than they are for a mortgage, a car loan at an unaffordable rate can still be quite financially harmful.
Let’s take a look at an example to demonstrate how much more you end up paying in interest over the life of an auto loan with a low credit score.
Imagine that you want to purchase a used car, thinking it’s the more financially responsible move. You have a FICO® auto score of 600 and decide to buy a 2010 Tacoma.
In 2021, a used 2010 Tacoma would cost about $15,000. You decide to put down $2,000 and finance the rest, leaving you with an auto loan balance of $13,000.
With a credit rating of 600, you’re looking at an interest rate of roughly 17.74% and a monthly car payment of $328.28.
Over a standard five-year loan term, you’d pay a whopping $6,697 in interest. That’s more than 50% of the original balance of the loan! You’d be much better off if you built yourself a higher credit score before making your purchase.
One of the best ways to build a good credit score is to take out a credit builder loan like Credit Strong’s. With our credit accounts, customers who make their payments on time see an on average 70-point increase to their FICO Score 8 in just 12 months!
We send your payment history to each major credit reporting agency to make sure you see the benefits on every credit report.
We also keep the principal in a savings account until the end of the loan (the opposite of a traditional loan), which lets you force yourself to save money that you can eventually put toward your auto loan down payment!
To top it off, our installment loans don’t hurt your credit utilization (unlike a credit card).
Let’s imagine that instead of taking your chances with a lower credit score, you decide to use a credit builder loan to improve your creditworthiness. You enter 2021 with a score of 670 and enough cash for a $5,000 down payment.
If you were to buy that same 2010 Tacoma for $15,000 (you like trucks), you’d have a principal balance of $10,000 and a much lower interest rate of 6.04%.
With your new numbers, you’d have a monthly payment of just $193.51 and pay only $1,611 over the same five-year loan. That’s $5,086 in savings!
You can learn more about how long it takes to increase your credit score here: How Long Does it Take to Build Credit?
Getting a Car Loan with your Bank vs. the Dealer
In general, there are two ways to borrow money to pay for your car. You can take out a loan from the dealer that sells you your vehicle, or you can borrow from a third-party lender, such as your bank or credit union.
The difference between the two usually comes down to convenience vs. price. While it’s easier to apply for a loan through the dealer, they’ll usually charge you more than your bank or credit union would.
The truth is that dealerships make the majority of their profits through their loans, not the profit margins on their cars. They really want you to get your loan through them so they can finance your purchase directly or go out and secure a loan on your behalf.
Either way, they’ll charge you quite a bit for their services. You’ll pay much less if you get prequalified with your bank, credit union, or an online auto lender before you even walk onto the dealership lot.
That way you can get a better picture of your options ahead of time and avoid getting pressured into paying for the additional financing fees of a dealership when it’s time to buy.
However, not every bank engages in auto lending, and not every dealer allows you to get third-party car financing. You’ll have to do your due diligence to find the right car, lender, and dealer before buying.
Can I get a car loan with a credit score of 600?
Yes, you can get a car loan with a credit score of 600. However, your interest rate is going to be very high because of your low credit score.
You should expect your interest rate to be well in the double digits if you apply for one with a 600 credit score. In 2021, borrowers with a credit score of 600 received interest rates of 11.92% and 17.74% for new and used cars, respectively.
For those who improved their credit scores by just 60 points, the average interest rates were 4.68% and 6.04%, respectively.
What is the minimum credit score for a car loan?
Technically, there is no minimum credit score necessary for a car loan. You can get auto financing even with a score in the deep subprime range.
That said, it’s not a financially savvy move. At the lowest end of the spectrum, a borrower that purchased a used car on credit should expect an interest rate of roughly 20.45%.
To put that in perspective, that’s over 5% higher than even the average credit card interest rate in 2020, which was 14.71%.2
Consider using a secured credit card (staying well below the credit limit) or a personal loan like our credit builder accounts to improve your score. That will help you avoid resorting to a bad credit car loan.
For the best results, make sure the lender you use reports your credit history to the right credit scoring agency (also known as a credit bureau) to make sure it shows up on your desired credit report.
Do car loans require a down payment?
No, car loans don’t usually require a down payment. However, just like taking out an auto loan with a bad credit score, it’s usually a bad idea to skip the down payment on your car.
You’ll end up paying significantly more in interest over the life of the loan due to a higher interest rate and an increased principal balance.
When do you need a cosigner to get an auto loan?
Cosigners aren’t usually necessary to get an auto loan. Some dealerships will be willing to provide auto loans to people with credit scores in the low 500s, which are deep subprime borrowers.
That said, you always have the option to add a cosigner, and it’s a good idea if they have better credit than you do. Even if they only have an average credit score, you’ll receive a better interest rate than you would otherwise.
Can I buy a new car with a 600 credit score?
Yes, you can buy a new car with a 600 credit score. However, if you borrow money to do so, you’ll pay a lot in interest.
Bad credit auto loans for subprime borrowers carry an average interest rate of 11.92%. That’s more than three times higher than the lowest interest rates on the market.
If you need to finance your purchase, you’d be better off waiting until you can increase your credit score to at least 660. If you can wait for a year or two, you could easily raise your credit score 100 points or more and reach the highest credit range.
With an excellent credit score in hand, you’ll have your pick of financing options.
You can find out more about taking your credit to the highest ranges here: How to Get an 800 Credit Score.
1 Source: U.S. Auto Debt Grows to Record High Despite Pandemic – Experian
2 Source: The Fed – Consumer Credit – G.19 (federalreserve.gov)
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