What Credit Score is Needed to Buy a Car?

Americans have an undying love of automobiles and the freedom they offer. Purchasing a new or a reliable pre-owned car allows you to travel to favorite restaurants, social events, or just take a weekend road trip. Cars, trucks, and SUVs equal freedom, and having the right credit score puts you in the driver’s seat faster.

Many automobile shoppers wonder what credit score is needed to buy a car. As you walk through a dealership lot considering your next ride, it may be prudent to review your credit score and elevate it as much as possible before applying for a car loan. You may be pleasantly surprised to discover that mid-range and low credit scores could still put you behind the wheel; however, lower scores typically mean you'll pay more over the life of the loan.

How Does Your Credit Score Affect Your Car Payment?

The fundamentals of securing a car loan are relatively simple to understand. Low credit scores generally result in paying higher interest rates and higher monthly loan payments. High credit scores usually create opportunities to qualify for low-interest Auto Loans with lower monthly payments.

Consider the following scenarios or estimate the numbers with a car loan calculator.

A couple decides to give their child a late-model family vehicle as they head off to college. Let's say the parent with the highest credit score falls into the prime 700s and qualifies for an interest rate of 5.5%, securing a down payment of $5,000 for a 60-month auto loan. After some light haggling with the salesperson, they agree on a purchase price of $30,000.

• Based on those numbers, the new monthly payment will total around $478, with roughly $3,652 in total interest paid, and vehicle cost of approximately $33,652.

Let’s rerun those same numbers based on a subprime credit score of 550, which generally pegs new car loan interest rates in the range of 14.90%-17.90%. Under the lower credit score scenario, with an interest rate at 14.90%, the family with a college-bound child incurs the following costs.

• The monthly payment rises to around $594, with the total interest at $10,606 and the total cost of the new vehicle totaling $40,606.

The difference between the first and second example amounts to an increase of approximately $116 each month, $1,391 annually, and $6,955 over the life of the loan. While lower scores tend to lead to higher interest rates and higher monthly payments, it’s important to keep in mind that auto loan lenders may consider other factors that can help offset a low credit score. 

What Credit Score Is Needed to Buy a Car?

The pragmatic answer to the question about what credit score is needed to buy a car seems relatively simple: The highest possible score before applying for a new or pre-owned car loan. However, this isn’t always correct. 

When discussing credit scores concerning car loans, lending professionals typically use a range of what is known as credit tiers. These tiers rank your creditworthiness and are based on borrowing history, risk, income, debts, and other factors. They use this to determine the interest rate you may qualify for. Borrowers that represent low risk fall in the top tier credit range (prime), borrowers who represent medium risk fall into the middle tier (nonprime), and higher risk borrowers fall into lower tiers (subprime). 

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

These scores are typically generated from one of the three major credit bureaus — Equifax, Experian, and TransUnion. Each calculates your creditworthiness based on impartial financial data using the FICO system to calculate a figure from 300 to 850. These factors include repayment consistency, credit utilization, a mix of loan products and lines of credit, the age of your accounts, and how often a hard inquiry has been made on your report. Hard inquiries are made by lenders when people apply for new credit cards, personal loans, and other types of borrowing. 

The three credit organizations may assign different credit score numbers because they review different information. A car loan lender may rely on one reporting agency, a mix, or consider an average of the three. Many auto loan lenders use their discretion and best judgment when processing car loans for car buyers. 

Reverting to the question of what credit score is needed to buy a car depends on the lender. While the ideal scenario is to have the highest possible credit score to achieve the lowest rate and monthly payment (which equals higher savings), the reality is that there isn't one magical credit score that is needed to buy a car. At Peach State, we offer Auto Loan programs for all credit scores including first-time buyers, those with established credit or those who are rebuilding their credit.

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How to Increase Your Credit Score Before Buying a Car

We’ve essentially answered the question of how your credit score affects the interest rate you qualify for and your monthly payment. The next step is crafting a strategy to improve your credit score quickly and efficiently to boost your potential savings.

Because the FICO score system uses specific metrics, car buyers can address issues that negatively affect their three-digit number. One of the simplest ways to quickly improve a credit score revolves around credit utilization. By paying off credit card balances and reducing an available line of credit to under 50%, a FICO score typically ticks up month-over-month.

Other techniques include securing a free copy of your credit report and scrutinizing it carefully. If you discover any errors or commitments that should have timed out, contact the reporting agency and have corrections made. The following common-sense approaches to responsible financial management can also help.

• Pay monthly bills on time
• Avoid checking account overdraft issues
• Avoid hard credit inquiries (applying for new credit cards, personal loans, and other types of loans)

Although it’s a good idea not to close credit card accounts when shopping for an automobile, paying off balances can demonstrate lower credit utilization and better financial management.

Other Ways to Buy a Car with Less than Perfect Credit

One of the ways to navigate poor credit is by bringing a sizable down payment to the process. The more you're able to put towards a down payment, the lower your loan amount and monthly payment. Cash is king as they say, and larger down payments help mitigate a lender’s risk. 

Another way to overcome a low credit score is to get pre-approved for an auto loan with a co-signer from a local lender that is more willing to work with car buyers while viewing the entire financial picture versus just the application. A co-signer is a person with established good credit who also agrees to accept financial responsibility of the auto loan. 

Car Loans for Less than Perfect Credit Do Exist

If you're looking for an auto loan and have less-than-perfect credit, explore what options your local auto loan lender may offer. Peach State has a unique program called Fresh Start Auto Loans that could open the door to the financing you need. It's a second chance auto loan to help you finance a vehicle, and if paid back correctly and on time, will improve your credit! Get pre-approved for a Fresh Start Auto Loan so you know how much car you can afford.

If you're ready to buy a new or pre-owned vehicle, apply online or get pre-approved for your auto loan with Peach State. If you have questions, please contact us today.