A credit score above 600 is generally preferred for a traditional auto loan. However, requirements change with lenders and you may have other options. Find out more.
Purchasing your first vehicle or looking to sell your current vehicle and get financing for a newer model is a significant financial decision. Your ability to finance the car of your choice and how competitive your loan is will depend on your credit score.
Generally speaking, you’ll need a credit score of at least 600 to qualify for a traditional auto loan. But credit scores come in different classes, and each lender has a different minimum credit score needed to finance a car loan.
Even with a credit score as low as 400, you might still be able to purchase a car, but you might not be happy with the loan terms that are provided. Let’s take a deep dive into the credit scores needed to buy a car.
The allure of driving off the lot with a brand-new car without having to shell out any cash upfront is undeniably tempting But is it a realistic possibility, especially if your credit score isn’t exactly stellar?
The answer, as with most things in finance, is a nuanced one. While it’s certainly possible to secure a car loan with zero down payment, your credit score plays a pivotal role in determining your eligibility and the terms of the loan.
Understanding the Credit Score Threshold
Generally speaking a credit score of at least 600 is considered the minimum requirement for securing a traditional auto loan. However, this threshold can vary depending on the lender, your financial history and the specific car you’re looking to finance.
Credit Score and Loan Terms:
As a beacon, your credit score helps lenders determine the terms of your loan and evaluate your creditworthiness. These terms may include:
- Interest Rate: A higher credit score typically translates to a lower interest rate, meaning you pay less in the long run. Conversely, a lower credit score may result in a higher interest rate, increasing the overall cost of the loan.
- Down Payment: While a zero-down-payment loan is within reach, a higher credit score may allow you to negotiate a smaller down payment, reducing the upfront financial burden.
- Loan Approval: Your credit score plays a significant role in determining whether your loan application is approved. A higher score increases your chances of approval, while a lower score may make it more challenging to secure financing.
Navigating the No-Money-Down Landscape
Credit Score Considerations:
- 600 or Above: With a credit score of 600 or higher, you have a good chance of qualifying for a zero-down-payment loan, albeit with potentially higher interest rates.
- Below 600: Securing a loan with a credit score below 600 is still possible, but you may face higher interest rates, stricter loan terms, or even rejection.
Alternative Options:
- Saving for a Down Payment: Consider building up your savings to make a down payment. Even a small down payment can significantly improve your loan terms and reduce the overall cost.
- Cosigner: Enlisting the help of a cosigner with a strong credit score can boost your chances of approval and potentially secure better loan terms.
- Buy Here/Pay Here Dealerships: These dealerships cater to borrowers with lower credit scores but often come with higher interest rates and fees.
The FINN Advantage: A Credit-Score-Friendly Alternative
If buying a car outright or securing a traditional loan isn’t feasible, consider exploring a FINN car subscription. This innovative option offers a flexible and affordable way to access a car without the commitment of ownership.
FINN’s Benefits:
- No Credit Check: FINN doesn’t require a credit check, making it an attractive option for those with less-than-perfect credit scores.
- Flexibility: Choose from a wide range of cars and adjust your subscription term and mileage package to suit your needs.
- Convenience: Enjoy hassle-free car ownership with insurance, registration, and roadside assistance included in your monthly subscription fee.
- No Long-Term Commitment: Unlike traditional car ownership, a FINN subscription allows you to switch cars or cancel your subscription after a short period.
Securing a car loan with zero down payment is achievable, but your credit score plays a crucial role in determining your eligibility and loan terms. By understanding your credit score and exploring alternative options like a FINN car subscription, you can make an informed decision that aligns with your financial goals.
Remember:
- A higher credit score translates to better loan terms and a lower overall cost.
- Consider building up your savings or enlisting a cosigner to improve your chances of securing a favorable loan.
- Explore FINN car subscriptions as a credit-score-friendly alternative to traditional car ownership.
With careful planning and exploration, you can navigate the car-buying process with confidence, regardless of your credit 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.
You can anticipate the following guideline interest rates based on your FICO credit score, per the credit bureau Experian’s State of the Automotive Finance Market report:
- 500 or less (poor) – 12. If you are approved for a loan, the average interest rate is 93% (there is no guarantee as a subprime borrower).
- 501 to 600 (poor to fair) – 10. 11 percent average interest rate. There are more loan options available, but you should work to improve your credit score first.
- Nonprime borrowers in the 601–660 (fair) range have an average interest rate of 7. 25 percent.
- 661 to 780 (excellent to excellent): 4 percent on average interest rates for prime borrowers 9 percent.
- Superprime borrowers with the lowest available interest rates (zero percent is even possible) have scores between 781 and 850 (great to excellent).
Two-thirds of financed cars go to borrowers with scores of 661 or higher, according to the same Experian report. Less than two percent of financing was awarded to people with scores below 500. The average credit score for a used car loan or lease was 678, whereas the average credit score for a new car loan or lease was 738. If yours is below these averages, it may be best to take steps to improve your credit score.
If not, you’ll need to set lower goals, save more for a larger down payment, or attempt to persuade the lender that you’re worth the perceived risk by providing documentation of your stable income and employment history, among other things.
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 reject your application for financing or present you with terms on an auto loan that are so onerous you might not be able to accept them.
Bad credit loans are expensive with very high interest rates. This implies that you pay more each month, which can add up to thousands of dollars over the course of the loan. Lenders and auto dealers view you as a far lower risk if your credit score is higher, say 700. This is likely to result in the following benefits:
- Reduced interest rates: First and foremost, dealers may make low-interest offers to those with a high credit score (let’s say 680 or above). This ultimately means lower monthly payments, which frees up cash.
- Reduced initial down payment: When purchasing a car, you will be required to contribute to the purchase price with an initial down payment. The minimum down payment will probably be lower if you are seen as low risk, though you might still want to make a larger payment to lower the total cost of the loan.
- Faster approval – Your loan application will probably be approved much faster than that of a higher-risk applicant if you are instantly viewed as a low-risk buyer.
How to buy a car with Bad Credit. Car buying Tips
FAQ
Can you get a car with no money down with a 600 credit score?
What is the lowest credit score you can have to buy a car?
What credit score is needed to buy a car without a cosigner?
Can you get a car loan with a 500 credit score?
Do you need a down payment to get a car loan?
You generally don’t need a down payment to get a car loan, but it’s in your best interest to make one. A down payment of any size reduces the amount you need to borrow, so your loan will cost less. Compared with a bigger loan with the same terms, you’ll have lower monthly payments and pay less interest over time.
How much money can you put down on a car loan?
For example, a 60-month, $35,000 new car loan with an interest rate of 7.5% and nothing down results in a monthly payment of $701.33. Making a 10% down payment of $3,500 lowers your monthly payment to $631.20. As a general rule, every $1,000 you put down on a car reduces your monthly car payment by $15 to $18.
Should you buy a car without a down payment?
If you want to buy a car but don’t have a chunk of money to use for a down payment right now, then you might want to consider a car loan zero down payment option. These loan terms can help car buyers drive a car off the lot without having to come up with a down payment first. However, going this route can come with its own financial ramifications.
Do you need a good credit score to buy a car?
That’s why most people who end up taking out an auto loan have a good or excellent credit score. The lower your credit score, the lower your chances of you being able to buy a car. If your credit score needs a lot of work, it may be hard to find a lender who will approve you for a car loan.