What is the Minimum Credit Score for a Car Loan?
Credit is a big part of U.S. life, and so are automobiles. Depending on where you live, a vehicle is a necessity. And if you need to buy a car or truck, a credit score may also be necessary. We’ll explain credit score ranges, the minimum credit score required for an auto loan, and ways to build or improve your credit if you can’t currently qualify.
Credit score ranges
The three major credit bureaus are Experian, TransUnion, and Equifax. These bureaus compile a consumer’s credit history and turn it into a credit report and credit score. The ranges for credit scores are as follows:
Bad: 300-629
Fair: 630-689
Good: 690-719
Excellent: 720-850
There are numerous places to find your credit score, including credit card companies, your bank, and sites like Credit Karma and Credit Sesame. Depending on where you look, you might see slightly different numbers. But generally, your score will fall within the same range.
Credit and auto loans
Most people can’t afford to pay cash for a car, so they will need an auto loan. You can apply for a loan at banks, credit unions, and in many cases, through the dealership. The lender will pull your credit report and score when you apply for an auto loan (or a credit card, personal, home, or student loan).
Your credit score is a way lenders determine if an applicant is an acceptable risk, but there are specific scores to show how risky you are for a particular type of product. So when you apply for an auto loan, the lender will likely pull your FICO Auto Score.
While all lenders have different criteria to determine whether or not to make a loan, the average credit score needed for a new car loan is 732, which is considered a good credit score. The average score for a used car loan is 665, which is a fair credit score.
If you have poor credit or don’t have enough credit history to have a credit report and score, it is still possible to get an auto loan. You may have better luck being approved through the dealership than a bank or credit union. And you will almost certainly have a higher interest rate and monthly payment than a borrower with a better credit score or an established credit history.
Another option is to look for a more affordable car or truck sold by a private person. A private seller won’t require a credit score or history, but they will require full payment in cash, a money order, or a cashier’s check. If you do buy from a private seller, it’s a good idea to have a mechanic inspect the vehicle before buying it to make sure there are no major problems that will cost you money in the near future.
Build or improve your credit
Building or improving your credit is important. Your credit score is a significant factor in determining your interest rate when you borrow money. The higher your credit score, the lower your interest rate. Anything above 760 will generally get you the best available interest rate. And the interest rate is the cost of borrowing money, so the lower it is, the more money you save over the life of the loan.
Upwardli was created to help new immigrants to the U.S. or anyone who needs to build or improve their credit score. We also have lots of resources to help you understand the American personal finance system and can help you find financial service providers that not everyone has credit or perfect credit.
