As a working class adult, buying a new car in the United States needs a bank financing your car purchase. This is because new cars cost a ton of money in our beautiful country. Hence, why most people want a bank financing their car purchases. To achieve this end, you need a good credit score to buy a car with low interest rate.
So, what credit score do you need for an auto loan?
Before I proceed, you should know your credit first. I highly recommend you check your credit score before heading out to a car dealership. A car salesperson will always ask you about it during a car purchase. This is especially, when you need help to find the right bank to finance your car purchase.
Having mentioned about knowing your credit score, here is what to know about which credit score is important for you to know.
Which Credit Score Is Used To Buy A Car?
On building credit for the first time article, I discussed the different credit score rating systems in the United States. You have the FICO score and the Vantage Score. From my experience, auto lenders will always use the FICO score to judge your credit worthiness.
On the other hand, the Vantage score is used mostly by rental businesses to access your credit history. At least, it has been my observation.
Having said that, what score do car dealerships use for credit?
A car dealership looking at a good credit score to finance your car will use FICO score for credit worthiness. This is because it is considered industry-specific. Hence, why financial institutions are more comfortable using it than the Vantage score.
What Credit Score Is Required To Finance A Car?
A decent credit score to buy a car would start from the Fair range. This is between 580 to 669. It will get you considered for a car finance. This is especially, when you have a steady job history and monthly income flow. It does not guarantee a low interest auto loan.
A good credit score to buy a car with low interest rate should be in Good or Excellent range. Good credit scores fall between 670 to 799, but Excellent credit scores are within 800 to 850 range. This is considered a good credit score to buy a car, especially with a small down payment.
While both will get you qualified for an auto loan, only one will get you the lowest interest rate possible. Can you guess which one will do it for you, my dear reader?
The excellent credit score- you are absolutely right. You will get the lowest interest rates available with this credit score. Now all you need, is to show proof of a steady monthly income flow to qualify for a car finance. Otherwise, your credit score will not do much for you.
What Credit Score Is Too Low To Buy A Car?
A credit score below 580 is too low to buy a car. Buying a car with such a low credit score would mean a high interest rate from any loaner trying to finance your car purchase. This is because below 580 is considered poor credit.
You know what that means, do you not?
It is the credit bureaus warning any potential loaner that you are a credit risk. Simply put, you either cannot be trusted to pay back a loan. Or worse, you will not consistently make payments as agreed on the loan’s terms and conditions.
The lowest credit score to finance a car would be 580. It is not good, but it puts you in a Fair credit score range. With a steady monthly income flow- a job or business, you could get approval for a car loan on that score.
What Credit Score Do You Need To Get 0% Interest On A Car?
To get 0% interest on a car requires a perfect 850 credit score. 850 credit score is not the credit score for the average American. So, it is not a guarantee and it improves your chances for a 0% interest on a loan. I said it is not a guarantee, because auto lenders want to make profit when they loan you money.
And, giving you a loan with 0% interest means they will not make a cent off the loan. Sincerely speaking, I am yet to meet such generous financial institutions in the United States. But, there are a few banks out there, who could give that to you when you are a great customer.
To reiterate, having a credit score of 850 may get you 0% interest on an auto loan. You will have to be on your debts though to get this high score. Personally, I never had it!
What Is A Good Car Loan APR By Credit Score?
Different credit scores will get you different car loan annual percentage interest rates. This is because a credit score determines your ability to pay back loans. If the number is bad, it reflects your lack of credit worthiness.
According to Experian, people with a credit score of 720 or above will get an average of 5.18% interest rate on new cars and 6.79% on used cars. Credit scores of 579 or below will get 14.08% and 21.32% rates on new cars and used cars respectively. As you can see from the numbers, a good car loan APR looks better with a good credit score.
This is why I always recommend building a great credit score before a car purchase. Or even better, fixing a bad credit score. This is to avoid having to deal with high interest rate on auto loans.
Who Has the Lowest Car Loan Rates For You?
When it comes to auto loans, credit unions offer lower rates on auto loans. This is comparison to traditional banks, auto lenders and car dealerships. Are you surprised?
I am not. Credit unions are friends of working class adults, especially American young working class adults. Let us look at the 2023 national average of auto loan interest rate between credit unions and banks according to National Credit Union Association.
| Car Condition | Credit Union | Banks | Loan Length |
|---|---|---|---|
| New Car | 6.39 | 6.90 | 60 Months |
| New Car | 6.25 | 6.83 | 38 Months |
| Used Car | 6.45 | 7.21 | 48 Months |
| Used Car | 6.33 | 7.27 | 36 Months |
As you can from the above data, credit unions have the lowest car loan rates for you. As long as you are a good customer with no blemishes on your banking records, they are open to doing businesses with you. After all, it is in their interest to make money.
Without a good credit history and a steady monthly income flow, it is hard to get approval for a car loan from a credit union. Your next option would be either a car dealership or a bank. Just do not forget to build a good credit history before getting an auto loan. Your credit score is a big factor, when auto lenders are considering giving you a loan.
What Is A Good Credit Score For the Average American?