In addition to other variables like your down payment, the length of the loan, and the kind of car you’re buying, your credit score will have a significant impact on your interest rate on a car loan.
Auto lenders consider a variety of factors when determining your loan interest rate, including your credit score.
According to Experians State of the Automotive Finance Market Report, interest rates have increased for consumers overall over the past year, with borrowers with better credit scores typically seeing the biggest increases. Even though interest rates are predicted to stay high for some time, if your credit is good or excellent, you can still get a low rate. Heres what to expect.
Yes, most lenders consider your 720 credit score to be good, and it’s more than sufficient to get you approved for an auto loan. You’re actually in a good position to negotiate a favorable interest rate with a score like that.
However it’s important to remember that your credit score is just one factor that lenders consider when evaluating your loan application. Other factors include your income, debt-to-income ratio and employment history.
Here’s what you can expect with a 720 credit score:
- Competitive interest rates: You’ll likely qualify for interest rates that are lower than the average for borrowers with lower credit scores.
- More loan options: You’ll have a wider range of lenders to choose from, including banks, credit unions, and online lenders.
- Lower down payment requirements: Some lenders may be willing to offer you a lower down payment requirement with a good credit score.
With a 720 credit score, the following advice can help you obtain the greatest vehicle loan possible:
- Shop around: Compare offers from multiple lenders to find the best interest rate and terms.
- Get pre-approved: This will give you a better idea of how much you can afford to borrow and will make the car buying process smoother.
- Consider a shorter loan term: A shorter loan term will result in a higher monthly payment, but you’ll pay less interest over the life of the loan.
- Make a larger down payment: This will reduce the amount you need to borrow and can help you qualify for a lower interest rate.
Here are some additional factors that can affect your auto loan interest rate:
- The type of car you’re buying: New cars typically have lower interest rates than used cars.
- The length of the loan term: Shorter loan terms typically have lower interest rates.
- Your debt-to-income ratio: The lower your debt-to-income ratio, the better your interest rate will be.
- Your employment history: A stable employment history can help you qualify for a lower interest rate.
In general, obtaining an auto loan is best started with a credit score of 720. You can improve your chances of obtaining the best terms and interest rate by paying attention to the advice provided above.
Here are some additional resources that you may find helpful:
- Experian: What Auto Loan Rate Can You Qualify for Based on Your Credit Score?
- The Ascent: How to Get a Car Loan With a 720 Credit Score
Please note that this is just a general overview, and your individual circumstances may vary. It’s always best to consult with a financial advisor to get personalized advice.
How to Get a Lower Auto Loan Interest Rate
Here are some steps you can follow to maximize your interest savings on your next auto loan:
- Increase your credit score. One of the best ways to obtain a lower auto loan interest rate is to raise your credit score. You can accomplish that by examining your credit report and score to determine which areas require attention. Reducing credit card debt and making sure past-due accounts are brought current are common strategies to raise your credit score.
- Shop around. Comparing rate offers from several lenders is one of the best ways to get a lower rate on your auto loan. Applying for preapproval and obtaining rates from three to five lenders is a good way to get a sense of what you might be eligible for.
- Apply with a cosigner. Applying with a creditworthy cosigner may increase your chances of receiving favorable terms if you don’t have time to repair your credit. When determining the risk of the loan and your interest rate, the lender will take into account both credit profiles.
- Make a larger down payment. Once more, making a larger down payment lowers your debt and the lender’s risk on the loan. Consider putting down more money if you can in order to save money on a lower interest rate.
- Opt for a shorter repayment period. Higher monthly payments are the outcome of a shorter repayment period. However, if you can afford it, it might help you get a better loan rate and pay less interest overall.
If you don’t have time to complete some of these steps, you can still work on them after buying the car and possibly refinance the loan later on to get better terms.
New vs. Used Vehicle
Many incentives are offered by automakers to entice buyers to buy new cars, such as lower interest rates via their financing subsidiaries. Other lenders, including banks and credit unions, may also lower their rates to compete. However, there is no reason for lenders to provide lower rates when purchasing a used car, so the average rate will be higher.
Lenders will take into account your debt-to-income ratio (DTI), which is the percentage of your gross monthly income that is used to pay off debt. A high debt-to-income ratio (DTI) could indicate that you are unable to take on additional debt without straining your finances and possibly raising your interest rate.
The criteria used by each lender to determine auto loan interest rates varies, and starting and maximum rates may be different.
The annual percentage rate (APR) for your eligible auto loan interest rate will be displayed. Your annual percentage rate (APR) will have an impact on both the monthly payment amount and the total cost of the loan over its term. You will pay more interest at the beginning of the loan term than at the end because of a process known as amortization.
KEY FACTORS You Need to Know about Credit Scores and Car Loans (Former Dealer Explains)
FAQ
Is 720 good credit score to buy a car?
How much can you borrow with a 720 credit score?
What credit limit can I get with a 720 credit score?
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Credit category
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Credit score range
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Average credit line
|
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Super prime
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720-850
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About $10,000
|
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Prime
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660-719
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Less than $6,000
|
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Near prime
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620-659
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About $3,000
|
|
Subprime
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580-619
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About $2,000
|
What is the lowest credit score to buy a car?
Is 720 a good credit score for a car loan?
If you’re shopping for a car loan with a credit score of 720 or higher, you’re in a strong position. A 720 credit score is considered good by just about every lender. But even though 720 is a high enough credit score to get a car loan, you might be able to lower your costs and save money if you can improve your credit score before you apply.
Can you get a student loan with a 720 credit score?
Student loans are some of the easiest loans to get with a 720 credit score, seeing as more than 70% of them are given to applicants with a credit score below 740. A new degree may also make it easier to repay the loan if it leads to more income. Note: Borrower percentages above reflect 2022 Equifax data.
Can a 720 credit score qualify for a credit card?
The best credit cards typically require good credit or better for approval, which means someone with a 720 credit score has a pretty good chance of qualifying. The trick is finding the right card for your needs.
What credit score do you need to buy a car?
The credit score needed for the best car loan depends on the lender, but in general, a credit score of 720 or higher will allow you to qualify for a lender’s best rates. This can also change according to economic conditions — for example, lenders tend to tighten their standards during recessions. Can I buy a car with a 600 credit score?