Because a credit score is an important indicator for determining a consumer’s creditworthiness when buying a car, those with excellent credit histories tend to have an easier time borrowing money on favorable terms compared to those with lower credit scores. However, industry data shows that high-risk borrowers remain viable candidates for auto loans. In other words, there is no universally defined credit score needed to buy a car.
Read on to learn how your credit score can affect buying a car, plus some tips for purchasing a car with a lower credit score.
Related: How does down payment size affect your auto loan?
What FICO Score Do Car Dealers Use?
There are a few different scoring models that car dealers may use for determining a customer’s credit score. They may use the FICO Auto Score 10, an industry-specific model featuring a score range from 250 to 900. The auto industry also may use VantageScore 3.0 or the newer VantageScore 4.0 model, which has a score range from 300 to 850.
No matter which scoring model is used, a bad credit score falls on the lower end of the range, and a good credit score sits on the higher end of the range.
What Is the Minimum Credit Score To Buy A Car?
There may not necessarily be a minimum credit score required to buy a car. Consumers with deep subprime credit scores from 300 to 500 have obtained financing for new and used vehicles in the second quarter of 2021, according to the credit bureau Experian’s State of the Automotive Finance Market report for that period. Although the percentage of borrowers in this category is very low, this indicates that even those with the lowest credit scores still may have access to auto financing.
Average APR by Credit Score Ranges
Consumers from all credit score categories have obtained auto loans in 2021, but car buyers with excellent credit histories tended to secure the lowest annual percentage rate (APR) financing, according to Experian’s Q2 report. When assessing what is a good credit score to buy a car, Experian’s data confirms that consumers in the super-prime and prime categories obtain the lowest interest rates on average for financing.
Quarterly financing data on new vehicle purchases in the second quarter of 2021 shows the following average APRs by credit score range.
- Deep subprime (300-500): 14.59%
- Subprime (501-600): 11.03%
- Near prime (601-660): 6.61%
- Prime (661-780): 3.48%
- Super prime (781-850): 2.34%
How to Buy a Car With a Lower Credit Score
Obtaining a loan to purchase a new or used vehicle when you don’t have great credit can be cumbersome, but it’s not impossible. Here are some ways a consumer with poor credit may be able to obtain auto financing:
1. Make a Large Down Payment
Offering a large down payment on a vehicle purchase may allow car buyers to obtain more reasonable rates and better terms for financing, resulting in more affordable monthly loan payments. By putting more money down at the time of purchase, lenders also may view the loan as less risky, thus increasing your odds of approval.
2. Get Cosigner Assistance
Buying a car with the assistance of a cosigner is another way to potentially bolster your chance of securing favorable financing. A cosigner agrees to share the responsibility of repaying the loan, effectively promising the lender that if you don’t make the payments they will. If the cosigner is creditworthy, it puts the buyer in a much better position to obtain financing than going it solo.
3. Consider a Less Expensive Car
Especially if you are buying a car with bad credit, it is important to know how much you can realistically afford to spend — and then stick to that budget, even if the dealer tries to upsell you. Additionally, finding a less costly car will reduce the amount you need to borrow, and it may be easier to get approved for a smaller loan amount than a larger one.
Benefits of Good Credit When Buying a Car
The benefit of a good credit score when buying a vehicle is that you may secure lower interest rates compared to consumers with poor credit. Unless a consumer buys a vehicle outright with cash or receives 0% APR financing, the consumer will eventually face monthly principal and interest payments until they’ve paid off the loan balance in full. Auto financing terms may vary in length, with some maturing at 60 months, 72 months or 84 months.
Car loans with a high APR may cause consumers to pay a long-term premium above and beyond the actual sales price of the vehicle.
How to Monitor and Keep Track of Credit Scores
There are a number of ways you can check your credit score, including through your credit company or another financial institution where you have an account, as well as through a credit service or credit scoring website. Contrary to what you may expect, your credit report does not include your credit score, though it does provide valuable information about your credit history and debts, which is why it can still be helpful to read over your credit report before making a major purchase like a car.
Credit scores can fluctuate over time depending upon financial circumstances, and credit score updates occur at least every 45 days. That’s why it’s important to take a look at where your score stands right before you begin the process of car shopping.
Also, keep in mind that it’s common for credit inquiries to occur when you’re shopping around to see what auto loan terms you qualify for. While soft inquiries don’t affect your credit score, hard inquiries, such as those that happen when you’re comparing rates for an auto loan, can ding your score. However, most major credit scores will count multiple car loan inquiries made within a certain period of time — typically 14 days — as one inquiry.
What’s Expected in 2022?
Based on the trends outlined in Experian’s Q2 report for 2021, prime borrowers with good credit in 2022 may continue shifting away from used vehicles in favor of new vehicles. Experian’s research also shows that subprime financing remains at near-record lows, with just a fraction of car loans in 2021 going to consumers in the deep subprime risk category. These trends could continue into 2022.
The Takeaway
While it is possible to buy a vehicle with bad credit in 2021, consumers in the subprime or deep subprime risk categories may want to explore ways of improving their credit scores to help secure financing with more favorable terms. As far as what credit score you need to buy a car, any score is potentially sufficient for obtaining financing.
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This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website.
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How to save up for a car
Does anything feel quite as good as hitting the open road in a shiny new car? Alright, a hot stone massage might feel better, but it’s still pretty hard to resist that new car smell. Buying a car should be a celebration, but often it can bring financial stress into your life. That’s why it’s important you take your time saving up for a car.
Learning how to save for a car may not be as fun as the road trip you’ve been fantasizing about, but it’s a necessary step if you want to buy your car in a stress-free way. We’ll break down the ways to save for a car so you can spend more time checking out roadside attractions and less time worrying about your bank account.
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If buying a new car is your plan, start your research by comparing a variety of makes and models. Figure out what’s right for your needs and budget. You can visit dealerships in person or review manufacturers’ websites to research car models that catch your fancy. Don’t be afraid to ask questions! Ask car sellers to clarify any fine print in their advertisements and try your hand at haggling for a better deal.
When shopping for a car, you should take advantage of any deals you can find such as rebates and special dealership offers. You can receive quotes from multiple dealerships—make sure you ask them if the price quoted includes deducted rebates. This process may feel tedious, but it will help you learn which make and model you can afford.
Purchasing a used car can potentially save a lot of money. If you find your dream car for sale as a used vehicle, you may need to be prepared to make the purchase quickly before someone else purchases the car.
That’s why it’s important to determine how much you can spend on a used car before you begin your search. The last thing you want is to feel pressured into spending more than you can really afford because you think a good deal is slipping away.
Purchasing a used car can potentially save a lot of money.
Before you begin shopping, review the used car market for the makes and models you are considering, to get an idea of what it may cost for you to buy the used car you want.
Before you purchase a used car, it’s good practice to follow the steps recommended by USA.gov for your financial and physical protection.
Steps like finding out if the car has any recalls, researching if the warranty is still in effect, and having a mechanic inspect the vehicle before making a purchase will hopefully keep both you and your wallet from being injured.
Ridofranz / istockphoto
Parting with a solid chunk of cash is never fun, but an appropriate down payment can help to make your car repayment process more manageable. There are two ways you can go about calculating your down payment:
Option 1: You can choose a make and model based on how much you’ve already saved for a down payment.
Option 2: Pick out which make and model you’d like to buy, get a price estimate, and then determine how large you’d like your down payment to be.
A 20% down payment is often recommended when purchasing a car, but this is not a set rule. Generally, the higher the down payment is, the lower the interest rate on your loan may be. Your down payment amount should ideally help bring your monthly loan payments to a cost you can afford.
If you have the cash flow to be able to purchase your car outright, then you can skip step three. Also, congrats, that’s a huge accomplishment! But if you can’t, there is no need to feel alone. 44% of American adults have auto loan debt.
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Buying a car can cost a pretty penny. According to a report from Experian, the average monthly car payment was $554 for a new car and $391 for a used car.
If you want to determine how much your monthly car payment will be, you can sit down and crunch the numbers, or you can let the Cars.com car loan calculator do the work. This calculator is designed to help you estimate what your monthly car loan payments will be throughout the life of your auto loan.
The process is fairly simple. To use the calculator, enter the vehicle price, down payment amount, trade-in value (if you are trading in a vehicle), sales tax rate, interest rate, and the rate of your loan.
The calculator will take care of the math and present you with your estimated monthly payment. Next, it’s time to figure out how to save up for a car.
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Unfortunately, the need to buy a car doesn’t always happen according to schedule. An unexpected breakdown, pricey repairs, or a change in your commute can all speed up your car-buying timeline.
An unplanned car purchase can lead to copious amounts of stress and unnecessary costs.
If you are able to, one good idea is to create a savings plan in advance of buying a car so you can take your time making such a big financial decision—and it could help you find more affordable options.
An unplanned car purchase can lead to copious amounts of stress and unnecessary costs.
Steps one through three should have given you a decent idea of how much money you’ll need to save for a down payment, and how much money you’ll need to budget each month after you purchase your vehicle.
One approach to saving is to take the amount you’ve determined you’ll need for a car upfront (don’t forget to subtract any money that may come from selling or trading in your current car) and divide it by however many months you have left until your ideal purchase date.
The number you get after doing this equation is how much money you should be saving each month to meet your goal. You might also think about saving more than that per month so you can prepare for your monthly payments.
And if you’re currently driving an older vehicle that is prone to issues, you may want to save a little extra as a cushion for any necessary maintenance or repair costs. Remember, saving for a car can take longer than you’d planned and that’s okay.
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Learning how to save money for a car can take a little trial and error. If you need to boost your saving efforts, consider a cash management account that allows you to spend, save, and earn all in one place.
That means the money you put aside for your new car could help you earn even more money. Happy driving!
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External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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