When it comes to applying for a car loan, the better your credit score and your financial history, the better the rate and terms you’ll qualify for. Different lenders have different criteria for what they consider a minimum score that will green-light a car loan, but there are some ballpark numbers to be aware of. Know what your credit looks like in advance of applying for a loan, and make repairs and adjustment if necessary to position yourself for the best deal.
Credit Scoring System
Credit scoring systems are somewhat subjective. Different things impact the ebb and flow of your credit score over time, but for the most part, not overextending yourself and paying all of your bills on time will help ensure you maintain a high or above-average rate. Credit scores range from 300 to 850, and anything over 650 or 700 is considered a good rating, while 750 or better is considered exceptional. When car dealerships run ads promoting low payments and interest, that quickly read disclaimer followed by fine print along the bottom of the TV screen usually indicates that the best deals are reserved for customers with those high magic numbers.
According to Edmunds, if you’re a subprime borrower -- someone with a credit score of 619 or lower -- you can usually still qualify for car financing, provided you can make a 20 percent down payment when you buy your car. You’ll probably be charged a higher interest rate than someone with better credit. Anyone with a credit score below that mark may be able to negotiate financing, but a bigger down payment and even higher interest rate is likely going to be part of the package. Approval will probably be based on a number of factors, including the type of car you purchase, the length of the loan and your debt-to-income ratio.
There are car dealers and lenders who say they specialize in bad credit financing. While you might be able to get a loan from one of these places, you’re likely to pay significantly more than necessary over the course of the loan. You might be better off taking time to repair your credit through consistent on-time bill payment and by paying off collections and reducing debt. When your credit score improves, go back and reapply for more traditional financing.
To give yourself the best advantage when seeking auto financing, know what you want to spend and talk to several different lenders before making a decision. Personal banks and credit unions are good places to approach because you’re just applying for a loan, not haggling over a car’s price and terms. If you’re still struggling to get financing, consider getting a co-signer with good credit to help you out.
- Edmunds.com: Car Financing in a Recovered Economy
- Car Buying Tips: Bad Credit Auto Loans - Tips and Scams to Avoid
- U.S. News & World Report. "Average Auto Loan Rates in February 2020." Accessed Feb. 13, 2020.
- Experian. "Which Credit Score Is Used for Car Loans?" Accessed Feb. 13, 2020.
- Fair Isaac Corp. "What's in my FICO Scores?" Accessed Feb. 13, 2020.
- Fair Isaac Corp. "Credit Checks: What are credit inquiries and how do they affect your FICO Score?" Accessed Feb. 13, 2020.
Lisa McQuerrey has been an award-winning writer and author for more than 25 years. She specializes in business, finance, workplace/career and education. Publications she’s written for include Southwest Exchange and InBusiness Las Vegas.