Whether you’re in the market for a new car, truck, or SUV, you’re probably going to need an auto loan to finance the cost. Most auto loans average around $20,000 for a used car and upwards of $30,000-$35,000 for something new. If you’re looking for a truck or SUV, you’ll likely pay a lot more.

Your credit score will help a dealer determine your interest rate and loan terms, so it’s important to know what credit score is needed to buy a car. Of course, a good credit score will get you lower interest rates and therefore lower payments.

If you’re wondering what credit score is needed to purchase a car, then you’ve come to the right place. In this article, we’re discussing car loans and credit scores so you can be better prepared for the impact when you start shopping. Keep reading to learn more.

What Credit Score is Needed to Buy a Car

If you’re planning on purchasing a new vehicle and you don’t know what your credit score is, then you have some homework to do. Especially if you think there are blemishes on your credit that are causing your score to drop, then you may have more to think about than what credit score is needed to buy a car.

Auto lenders perform a hard credit inquiry to determine whether you’re a high-risk borrower or not. And, if you’re not sure what your score is going in, you could be in for big surprises.

Average Credit Score For a Car Loan

The average credit score to buy a car for new vehicles is above 700, somewhere in the range of 715. The average credit score to buy a car for used vehicles is closer to 650. But, even if you have a lower credit score, you should be able to obtain financing; it will just mean that your interest rates will be much higher.

Car Loan Rates According to Credit Score

In general, the best interest rates go to those that have stellar credit. Here is a breakdown of the approximate average new car and used car APRs that you can expect according to your credit score:

• Credit Score – 781-850 = 3.23% New, 3.95% Used
• Credit Score – 661-780 = 4.16% New, 5.68% Used
• Credit Score – 601-660 = 7.05% New, 10.44% Used
• Credit Score – 501-600 = 11.35% New, 16.92% Used
• Credit Score – 300-500 = 14.07% New, 19.81% Used

Payments

To break this down a little further, a buyer with good credit will pay approximately $378 per month on a $20,000 loan for five years. This compares to the buyer with bad credit that could pay about $483 for the same loan and terms.

It’s also important to note that you’ll pay more over the life of the loan with a higher interest rate. This means that you’ll pay more than the sticker price when it’s all said done if you have bad credit.

Before You Start Shopping

If you fall into the category of subprime or deep subprime, meaning low credit scores, you’ll need to think about improving your credit score before shopping for an auto loan. Make sure that you’re paying all of your bills on time and keeping your credit card balances below 30% of your credit limit. Also, only open new credit accounts when necessary.

Check Your Credit

Regardless of your credit score, you should check your credit report for errors. You can use credit monitoring sites or request a copy of your credit report directly from the three credit bureaus, Experian, Transunion, and Equifax. You can learn more about your credit report using these methods and make necessary improvements before you meet with a dealer.

Good Credit vs. Bad Credit

It’s important to know the parameters and guidelines that dealers use when considering your credit for an auto loan. Even while many auto lenders use their own point scale, your general credit score will likely match these scores.

The ranges of credit scores are as follows:

• 750-850 = Excellent Credit
• 700-749 = Good Credit
• 650-699 = Fair Credit
• 551-649 = Poor Credit
• 300-550 = Bad Credit

Pre-Approvals

When you are ready to start shopping, you should consider getting pre-approved first. This will help you eliminate the possibility of getting pressured into a deal that you ultimately cannot afford. You’ll have a better idea of what your options are in terms of your loan amount and APR before you even walk onto a car lot.

Quotes

Once you have a pre-approval in hand, you can shop around for quotes from different lenders to find the lowest rate possible. Remember that even a minor difference in interest rate can have a significant impact on the overall cost that you’ll pay over the life of your loan.

What to Expect in Financing

Especially if you have a low credit score, your lender will want to review any documentation that you can provide proving on-time payments for at least six months. They will also consider how many years you’ve been working, whether or not you own a home and any down payment that you can come up with.

Budgeting for a Car Payment

Knowing what you can afford is an important aspect to consider when purchasing a new or used vehicle. Especially if you’re buying a used vehicle, you’ll need to budget for maintenance. If you’re buying new, you may expect to pay higher insurance premiums.

Don’t jump into a loan right away if you can avoid it. Take some time to work the monthly payments and other costs into your budget before you sign the paperwork to ensure that you can actually afford what you’re buying.

Final Thoughts

Even if you have bad credit, you should be able to get a car loan. Just be prepared to pay higher interest rates which translates to more money spent in the long run. You can request a longer term to keep payments lower, but this still means you’ll pay more out of pocket for the car overall.

Regardless of your credit score, a down payment can help mitigate the costs of your new car. Consider bringing at least 25% down to the closing table to see any kind of significant impact on your loan.

If you’re still wondering what credit score is needed to buy a car or you have comments about what you’ve learned herein, feel free to contact us. We strive to bring you interesting information about general topics and advice.