Asking about the right credit score to get an auto loan is a better inquiry to make. Since it is in the best interests of the dealer to sell a car to you, they will do their best to assist you in any which way possible –– even if it means giving advice on your financial situation. Nevertheless, the interest rate you will be charged may be absurdly high.
Key Takeaways
- "Deep subprime" or very bad credit is when it falls to 450 or lower. As long as your credit score is not very bad, you will most likely be able to acquire auto financing. Nevertheless, the interest rate you pay will be higher.
- A higher credit score may help you save a significant amount of money for your auto loan's repayment period.
- As of 2022, having low credit can result in an interest rate that is 17 percentage points greater than usual.
- Before you go out and try to get financing for a car, it could be in line with your best interest to wait some time and focus on improving your credit score first.
What Kind of Credit Score Is Necessary to Purchase a Car?
Let's say that Person X and Person Y are both in the market for old automobiles. They wish to finish up their debts within the next three years, and each of them has $2,000 available to spend. They each decide on a model that costs $10,000, and it just so happens that the dealership has two automobiles that are the same. The only thing that differentiates these two individuals is credit rating. The score for Person X is 750, but the score for Person Y is 620. X's credit score of 750 enables them to obtain a loan that has an interest rate of 5%. In contrast, Y's credit score of 850 means that they can only secure financing with an interest rate of 8.50%. For the loan's three years, Y will pay a higher total amount than X. If the loan were for a larger amount, the disparity would have been even more pronounced. It can be quite challenging for individuals with poor credit to get a car loan approval. These individuals are commonly referred to as deep subprime borrowers.
Type of Credit |
Credit Score |
Rate Offered on Used Car Loans |
Rate Offered on New Car Loans |
| Excellent credit | 750+ | 6.58% | 6.33% |
| Good credit | 700-749 | 10.89% | 10.64% |
| Fair credit | 600-699 | 14.52% | 14.27% |
| Poor credit | 451-599 | 17.77% | 17.52% |
Credit score –– how is it determined?
Experian, Equifax, and TransUnion are considered the three most important credit reporting bureaus in the United States. They record your borrowing patterns and include them in reports that are routinely updated with the results. One's credit score's an overview of the information. To determine your credit score, you can contact the credit bureaus directly. You can get information about your credit score from various financial institutions, including banks, credit card firms, and other financial institutions.What are some ways in which I can improve my credit score?
If you adhere to a few basic recommendations, you should see an increase in your score.Always make your monthly loan payments on time
Each month, you should pay the minimum amount due, and you shouldn't be late with any of your payments. Your track record of making payments within the allotted time frame is amongst the most critical components in determining your credit score.Keep your utilization of available credit below 30 percent at all times
If you are using your credit cards to their maximum limits, it is an indication that you are short on cash. By making regular payments toward your debts, you can help ensure that your outstanding loan balances do not exceed 30 percent of your total credit limit.Maintain active accounts on your credit cards
Don't cut up your old credit cards just yet. Even if you aren't currently using them, retaining ownership of them is strongly recommended. Suppose you are ready to purchase a vehicle. You don't want to make your activity any longer than it needs to be at this stage. In that case, you must take care of a car loan before considering financing for anything else. Going with a more refined and more expensive car might be incredibly tempting. However, always keep in mind that you have to afford the monthly payments on the vehicle before making a purchase. Your credit score will be affected negatively, as will your prospects of obtaining lower interest rates on loans if you make even one of your payments late or late enough to be considered overdue.Frequently Asked Questions (FAQs)
Credit score needed to have in order to purchase a car with no interest at all?
If you purchase a car after taking out a loan, you will almost always pay interest on that loan. Car dealerships may provide financing options for customers that include an interest rate of 0% for a predetermined time period. The duration may vary.When I pay off my car loan, what happens to my credit score?
Your credit score will increase if you pay off any outstanding debt, including the loan on your automobile. It reflects a track record of paying bills on time. It also reduces the proportion of your income that goes toward paying off debt, making you appear all the more appealing to potential lenders.