While there is no set credit score to get an auto loan, a majority of approved borrowers have scores above 660. Having a low credit score won’t necessarily keep you from getting an auto loan, but you will likely pay a higher interest rate.
Here is what you need to know about auto loan credit scores and how to increase your score to get a better rate.
The credit score required and other eligibility factors for buying a car vary by lender and loan terms. Still, you typically need a good credit score of 661 or higher to qualify for an auto loan.
About 69% of retail vehicle financing is for borrowers with credit scores of 661 or higher, according to Experian. Meanwhile, low-credit borrowers with scores of 600 or lower accounted for only 14% of auto loans.
Despite these car loan statistics, buying a car with poor credit is possible, especially if you can provide a generous down payment. However, having a good to an excellent score will increase your chances of approval and help you secure the most competitive rates and terms.
Understanding auto loan credit scores
Your credit score is how lenders measure your financial stability and determine your repayment reliability. In general, the higher your credit score, the better rate you can get. Experian gives the following credit score tiers and average interest rates for new and used car loans.
| Category | Score range | Average rate for a new car | Average rate for a used car |
|---|---|---|---|
| Super prime | 781 - 850 | 5.61% | 7.43% |
| Prime | 661 - 780 | 6.88% | 9.33% |
| Nonprime | 601 - 660 | 9.29% | 13.53% |
| Subprime | 501 - 600 | 11.86% | 18.39% |
| Deep subprime | 300 - 500 | 14.17% | 21.80% |
Source: Experian’s State of the Automotive Finance Market Q3 2023
Based on the data above, borrowers with scores in the high 600s could expect to receive rates around 9.33% when financing a used car, compared with 21.80% for borrowers with scores below 500.
Our auto loan calculator can help you compare monthly payments between credit score tiers. For example, if you have a credit score of 790 and want to finance a new car for $30,000 with a 60-month term and no down payment, your estimated payment would be $574.56 a month. However, this payment would increase to $626.98 a month if you have a credit score of 640.
When researching car loan options, keep in mind that advertised rates typically apply to high-credit borrowers. If you want to unlock the most attractive rates, consider boosting your credit score before applying.
What is a FICO Auto Score?
Many dealers use a FICO Auto Score instead of a traditional FICO Score or VantageScore when evaluating your car loan application. Your FICO Auto Score can range from 250 to 900, depending on your previous auto loans. Factors such as how much you borrowed and any delinquencies or auto loan bankruptcies can contribute toward this credit scoring model.
Your FICO Auto Score also looks at credit utilization rate, length of credit history, credit mix and new credit, while ensuring that certain factors don’t have such a significant impact. For example, unpaid medical bills won’t ding your score as much as other types of debt.
While checking and monitoring your credit scores and accessing your credit reports is free, you must pay for your FICO Auto Score at myFICO.com.
Checking your credit score before applying for an auto loan can help you know where you stand. If you can’t qualify for a car loan, here are some ways to improve your credit score:
- Check your credit report for errors. Mistakes do happen, along with fraudulent activity. If you notice something amiss, contact the credit bureaus to dispute credit report errors.
- Pay all bills on time. Payments more than 30 days late can drastically affect your credit score. Set regular reminders to stay on top of important monthly bills.
- Reduce your credit card debt. Lenders may look at your credit utilization ratio and debt-to-income (DTI) ratio to assess whether you have enough income to cover your essential bills in addition to a car loan payment.
- Increase your credit limits. Requesting a credit limit increase will alter your credit utilization ratio and could improve your credit score. However, avoiding a credit limit increase is best if you think you might rack up more charge than you can afford.
- Keep your credit accounts open. Closing your current credit card accounts could hurt your score by reducing your overall credit limit and changing your credit utilization ratio. Unless you are paying high annual fees, keeping your credit card accounts open can help keep your credit profile in good shape.
- Avoid applying for other types of credit. Opening new accounts can hurt your credit score by reducing your average age of accounts. If possible, avoid taking on new debts within six months of applying for a car loan.
How to get a car loan with bad credit
If you have a score of 660 or lower, you will likely need to look at bad-credit auto loans. While these loans can help you finance a car, note that you may get a higher interest rate.
Here are some tips to get approved for a car loan with bad credit:
1. Save for a down payment
Providing a significant down payment for a car can help offset a limited or damaged credit profile, reassuring the lender that you can handle this debt. The less risky you appear, the better rates and terms you could receive.
If you don’t have enough cash, you can consider bad-credit car loans with no money down — which can provide 100% car financing. Just be prepared to pay higher interest rates when getting an auto loan for bad credit.
2. Calculate your loan budget
Decide how much you can comfortably borrow without getting over your head in debt. Start by researching the cost of owning a car and finding an option that fits your budget. The 20/4/10 rule can help you determine the ideal amount to spend on a car:
- Saving for a 20% down payment
- Picking a repayment term of four years or less
- Budgeting less than 10% of your monthly income on transportation costs
You can also weigh the pros and cons of financing a used car versus a new car. While new cars have lower financing and maintenance expenses, used cars have lower upfront costs, including reduced insurance and registration fees.
3. Add a cosigner
A car loan cosigner can improve the chances of loan approval and help you get a lower auto loan rate. Lenders typically view two people taking responsibility for the loan as a positive sign that they will receive payments each month.
Make sure your cosigner knows the legal responsibility involved with cosigning before proceeding. If you can’t repay the debt, it will be the cosigner’s responsibility to make payments. If the loan defaults, both applicants’ credit scores will suffer.
4. Shop around for auto loan preapprovals
Lenders will evaluate your credit history slightly differently when determining your auto loan interest rate. That’s why it’s best to shop around to find the best auto lender for your situation.
An auto loan prequalification requires a soft credit check and suggests rates and terms based on limited information. A preapproved car loan, on the other hand, involves a hard credit check but provides a more accurate offer and can help with the negotiation process.
You can generally apply for multiple preapproval car loan offers within a 14-day window without further impact on your credit score.
5. Compare offers and finalize loan details
If you receive offers from multiple lenders, read the fine print for additional expenses, such as origination fees and prepayment penalties. These hidden costs can make a loan cost more than expected, especially if you have to pay a hefty prepayment penalty for an auto loan refinance down the road.
In addition to loan costs, watch out for common dealer fees — some of which you can negotiate or pass on.
Buyer beware
Dealerships advertising “guaranteed financing” and “buy here, pay here” should be a last resort. These businesses tend to toe the line of predatory behavior. If you take a loan with one, make sure you pay a fair price for the car and get a competitive auto loan rate.
You have several options when it comes to applying for a car loan.
Dealer financing
Auto companies like Ford and Toyota offer their own car financing, allowing you to streamline the lending and purchasing process. However, dealerships tend to charge higher interest rates than other lenders.
Credit unions
Credit union auto loans can provide low rates, since the profits go to credit union members through reduced interest rates and higher returns on savings products. You must be a credit union member and meet their eligibility requirements.
Traditional banks
Brick-and-mortar banks generally provide competitive rates with flexible terms and limited fees. However, traditional lenders tend to impose stricter eligibility requirements, making them harder to get for low-credit borrowers.
Online lenders
Online auto lenders typically have the most flexible credit requirements, with many lenders catering to bad-credit borrowers. You can also save time by submitting your auto loan application online. However, these loans tend to have higher interest rates and more fees than credit unions and banks.
The higher your credit score, the better the rate you’ll get for any loan. A credit score above 660 will typically allow you to qualify for an auto loan without a hassle. A credit score of 781 and above will typically allow you to qualify for the most competitive rates, which could save you thousands of dollars in interest.
Financing a car with bad credit is more challenging, but it’s possible.
Buying a car with bad credit is possible with credit scores as low as 500. Having a high down payment, getting a good deal on the car and having a cosigner can all improve your likelihood of being approved.
People with prime credit scores of 661 or higher likely don’t need an auto loan cosigner.
Yes, you can buy a car with no credit history. One option is to pay for the car with your savings or to provide a significant down payment. Alternatively, you can show the lender proof of consistent income to reassure them you can handle the debt. However, not having adequate credit means you will likely end up with a higher interest rate.
Yes, a car loan will improve your credit score if you make the payments on time and in full until you trade in the car, sell it or pay off the loan.
