What Credit Score Do You Need to Buy a Car?

Are you considering buying your first car? Or maybe you’re looking to sell your car and arrange financing for an upgraded model? Either way, it’s a big financial decision. Your credit score will impact how competitive your loan is and your capacity to finance the car you want.

Generally speaking, you’ll need a credit score of at least 600 to qualify for a traditional auto loan. However, there are different classes of credit score and the minimum credit score required to finance a car loan does vary by lender. 

It may even be possible to buy a car with a credit score as low as 400 but you may not like the loan terms you’re offered. Let’s take a deep dive into the credit scores needed to buy a car.

What is a credit score?

Your credit score is a prediction of your perceived ability to repay a loan or, to put it another way, the perceived level of risk you present to lenders.

The score is usually calculated from your track record in paying bills, loans and debts as well as the number and types of loan accounts you have, their duration, whether you have defaulted, etc. Most credit scores range from 300 to 850 and, in most cases, the higher your credit score, the easier you’ll find it to secure attractive interest rates and terms for auto loans.

How does your credit score affect your auto loan? 

Many people who purchase a car depend on reasonable financing. Ultimately, the higher your credit score, the better loan deal you’ll be offered by lenders.

If, for example, you have a credit score of just 500, this is known as “subprime”. Lenders are likely to refuse your finance application or offer auto loan terms that are so onerous that you may not be able to accept them. 

Bad credit loans are expensive with very high interest rates. That means you end up paying more every month and, over the term of the loan, this can add up to many thousands of dollars. With a higher credit score, say 700, you’re perceived as far lower risk by the car dealers and lenders. This is likely to result in the following benefits:

• Lower interest rates - Most importantly, a high credit score (let’s say 680 or higher) can result in low-interest offers from dealers. This ultimately means lower monthly payments, which frees up cash.
• Smaller down payment - When you buy a car, you will be expected to pay a portion of the cost in the form of an initial down payment. If you’re perceived as low risk, the minimum down payment is likely to be lower (though you may still want to make a larger payment to reduce the overall cost of the loan).
• Quicker approval - If you’re immediately seen as a low-risk buyer, your loan application is likely to be approved much quicker than a higher-risk applicant.

What credit score is needed to buy a car with no money down?

Some people want to buy a car with no down payment. This is possible but you will probably need a credit score of at least 600 for an auto loan without any down payment — and it means the loan will be more expensive overall than if you can make a sizable down payment when you buy.

What credit score is needed to buy a car with zero interest?

Some automakers offer interest-free auto loans to attract new customers. To qualify for one of these, however, you’ll likely need an excellent credit score of 800 or above.

What’s the minimum credit score required for a car purchase?

There is no definitive minimum credit score needed to secure the necessary financing to purchase a car. Each lender is likely to have minimum standards that it considers before approving a loan and it may vary depending on the car you’re looking to finance.

The main types of credit scores for auto loans

There are three common types of credit scores used by auto lenders to determine interest rates when financing car purchases:”

1. FICO score

This is the most commonly used credit score, with a range from 350-850. It takes into account your credit mix, payment history, amount owed, average credit history and available credit.

2. VantageScore

VantageScore also ranges from 300 to 850. It uses slightly different metrics to FICO, such as  payment history, depth of credit, utilization, balances, recent credit and available credit.

3. FICO automotive (auto) score

This ranges from 250 to 900. It weighs past car-loan payments and any repossessions or auto-loan bankruptcies you’ve filed in the past more heavily than the traditional FICO score.

Credit scores and better interest rates: an inverse relationship

The higher your credit score, the lower the potential interest rate of your loan. To understand how you’ll be perceived by lenders when you’re hunting for a loan and the terms that you can normally expect, find out your credit score and refer to the FICO credit score table.

According to the State of the Automotive Finance Market report by credit bureau Experian, you can expect the following guideline interest rates based on your FICO credit score:

• 500 or less (poor) - 12.93 percent average interest rate if you qualify for a loan (there’s no guarantee as a subprime borrower).

• 501 to 600 (poor to fair) - 10.11 percent average interest rate. More loan options available but you should try to raise your credit score.

• 601 to 660 (fair) - Nonprime borrowers with an average interest rate of 7.25 percent.

• 661 to 780 (good to great): Prime borrowers with an average interest rate of 4.9 percent.

• 781 to 850 (great to excellent) - Superprime borrowers with the lowest interest rates on offer (zero percent is even possible).

The same Experian report found that two-thirds of financed cars go to borrowers with scores of 661 or higher. Less than two percent of financing was awarded to people with scores below 500. For a used car loan or lease, the average credit score was 678 while for a new-car loan or lease, it was 738. If yours is below these averages, it may be best to take steps to improve your credit score.

Alternatively, you’ll need to lower your sights, save for a higher down payment or try to convince the lender that you’re worth the perceived risk by presenting evidence about your financial stability including income, employment history, etc.

Sample used car loan repayment

Say that two used car buyers arranged the same $25,000, five-year loan with no down payment. The monthly payment for Buyer A (with a high credit score) was $505 and for Buyer B (with a low credit score) was $605. Buyer B would pay $6,000 more in interest over the life of the loan.

Can you get a car with bad credit? 

As you’ve seen, a bad credit score will severely harm your loan options and terms if you qualify for a loan — but it doesn’t prevent you from buying a car if you’re determined to do so.

If you want to buy your car faster, you’ll need to accept a high-cost loan due to very high interest rates offered on subprime loans. If you can’t improve your credit score, you could try to save up more cash to buy the vehicle outright.

Some buy here/pay here dealerships may be more willing to offer loans to people with bad credit but you’ll likely end up paying high fees and may need to purchase gap insurance. Realistically, other options may be preferable to buying a car if you suffer from bad credit.

Is a car subscription a better option than buying a car?

It’s always worth trying to improve your credit score – not just for buying a car but for securing any loan. You’ll need a credit score of 600 to 750 to secure an attractive financing deal for a car — and even higher if you want some of the lowest interest rates around.

If you’re hunting for the ideal car to drive and buying is not a realistic option right now, consider a car subscription instead. You pay a fixed monthly fee, which includes insurance, registration, and roadside assistance. Plus, have the flexibility to change the car you drive after a matter of six to 12 months. 

Consider a car subscription with FINN for greater flexibility and convenience.