What is a Good Credit Score to Buy a Car?

A credit score is one of the main concerns of any adult, especially those looking forward to applying for a loan. Credit scores will play a part in whether you will leave a good impression on a lender or not. They show how likely it is that you will make the payments on time. So, it only makes sense that if you want to get a car loan, then the credit score will come into play. But what is a good credit score to buy a car?

What Is a Credit Score?

A credit score is a three-digit number that shows your creditworthiness. This number will be able to show if you’re someone who isn’t late with bill payments and if you’re someone that doesn’t represent a risk. Credit scores usually go between 300 and 850, and they are calculated by credit bureaus with information collected from your credit reports. This information could be the amount of debt you have at the moment, your payment history, how long your credit history is, and so on.

The lower the credit, the higher the risk for the lender because it usually means that the client is a risky one – he’s not someone to be trusted with a loan. If your score is higher, though, it means that the behavior you had with your credit in the past was a responsible one. This means that lenders will trust you with loans.

The lowest credit score is between 300 and 579, which shows poor credit. Between 580 and 669 it’s fair, and between 670 and 739, it’s good. The best credit scores you could have are between 740 and 799, and the highest one is a score of 800-850, which is considered excellent.

How Do Credit Scores Affect Buying a Car?

Credit scores can affect the purchase of a car because you may need a car loan to get your dream vehicle. As such, your credit score will come into play when the lender will analyze your credit history to determine the risks.

This is why it’s a good idea to look at your credit score before you are rushing to buy your car. The score can affect the loan, as well as the interest rate. The higher the score, the more chances you’ll have to get a good deal. After all, the credit score will determine how much you’ll pay in interest as well.

Now, that doesn’t mean that not having an excellent score will prevent you from getting a car loan. But it’s ideal to have a higher credit if you want to obtain the trust of the lender and increase your chances of buying your preferred vehicle – and pay lower interest rates, of course.

What’s a Good Credit Score to Buy a Car?

According to an analysis done by Experian back at the start of 2019, people usually had a score of around 716 when requesting a loan for a new car. On the other hand, people who needed financing for a used car had a score of around 657.

There are five categories set by Experian for auto-loan borrowers, respectively:

• Super prime (781-850)
• Prime (661-780)
• Nonprime (601-660)
• Subprime (501-600)
• Deep subprime (300-500)

Now, what you need to know is that subprime and deep subprime borrowers are in a very small number when it comes to car loans. People in these categories are getting car loans more rarely compared to those with a higher score. They are only under 19% of all car loan borrowers. As for the top categories, they represent about 63% of auto-loan borrowers.

As mentioned earlier, the higher your credit score is, the lower the interest rate is going to be. Therefore, you will pay less in interest and have a much easier and trouble-free life as a result. Here’s how your credit score influences your interest rate:

• Super prime – 4.20%
• Prime – 5.12%
• Nonprime – 8.08%
• Subprime – 12.42%
• Deep subprime – 14.97%

If you’re getting a used car and you need a used car loan, then the interest rates will be much higher. Subprime borrowers will have a 17.52% rate, whereas deep subprime ones will have 20.24%.

What to Do If Your Credit Score Isn’t Great?

Now, you may want to apply for a car loan, yet you don’t have great credit. It doesn’t mean you will definitely not get a loan – you just have smaller chances compared to someone with an amazing score, and your interest rate will surely rise considerably too.

If you have a score that isn’t above 700, you may have to explain why your score is not higher. But even still, you may want to do something to help your score grow a little and boost your chances of obtaining the loan in the first place.

First things first, improve your credit score where you can. That means you should start paying your bills on time and looking for potential errors on the credit reports. Also, if you have debt, then try your best to reduce it if possible. This will also show the lender that you’re at least trying your best to repay the debt, which could help a lot. Also, ensure you have enough cash for a down payment, and that you go to multiple lenders before you settle for one.

If your credit score isn’t great despite all of this, you should try the following tips:

Getting a Cosigner

Having a cosigner will be very helpful because the likelihood of obtaining a car loan will be instantly higher. A better interest rate may apply as well. After all, having a cosigner tells the lender that the cosigner will pay in case you fail to make payments.

Trying a Credit Union

Credit unions are known to offer loans even to people with lower credit, and they usually have good terms and low interest. So, why not consider one?

Use a Second-Chance Loan

Second-chance loans are meant for people with bad credit, as they offer them another chance to improve their financial behavior and make payments on time. The disadvantage is that they may have higher interest rates.

Can a Car Loan Help Build Credit?

A car loan can indeed build credit. There are two ways through which this could happen, respectively credit mix and payment history.

The former refers to whether you have both revolving credit and installment loans. The latter refers to whether you are paying your bills on time or not. If you always pay your car loan debt on time, then it shows you’re responsible and your credit will be boosted as a result.

Conclusion

Getting a car loan is an important decision because you will have some extra monthly payments for a certain period. If you came here wondering “What is a good credit score to buy a car?”, now you should know what the ideal minimum score should be. The higher the credit, the more advantages you will have. While you may be able to get a loan with a worse credit too, the interest rate will add more debt.

Frank Gogol

I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.

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