What Credit Score Do You Need To Buy a Car?

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Buying a car is a big decision, and if possible, it’s better to pay in cash. But for many people, a vehicle is the second-largest purchase they’ll ever make, and that often means borrowing money.

Money expert Clark Howard says it pays to do your homework before shopping for a car loan so you can get the best interest rate possible.

That rate is based, in part, on your credit score. So you’d think it would be easy to quantify what credit score you need. But in researching this question, I learned it’s not a number lenders want to talk about.

I kept searching and analyzed several different sources to try to get at the bottom line number.

I found that some lenders may approve you for a car loan with a credit score as low as 450. That score may qualify you for a loan, but the interest rate will be sky high.

If you can afford to wait just a few months before you buy, doing some homework — and legwork — can end up saving you lots of money on a car loan.

In this article, I’ll give you the information about credit scores as they relate to car loans and take you through the steps to help you get the best rate possible for your particular situation.

What Is the Minimum Credit Score To Buy a Car?

If you apply for a car loan, you can be sure that the lender will check your credit score. Lenders use a variety of different credit rating products to evaluate auto loan applications; most of those products have a scoring system that starts at 300 and tops out at 850.

Jeff Richardson of VantageScore (one of the best-known credit rating products) told Credit.com that some of the larger lenders use custom scoring models built either by in-house statisticians or third parties.

My research into this subject indicates that the bare minimum credit score to qualify for a car loan is likely in the neighborhood of 450.

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MyAutoloan.com, an online vehicle loan marketplace, does not list data on auto loan interest rates for credit scores below 451. And the popular credit rating product myFICO.com doesn’t even include rates for credit scores below 500.

Ultimately, the lender will determine what rate you are eligible for with your credit score. Other factors they may consider when determining how much to lend you and what the interest rate will be include your income, employment history and debt-to-income ratio. 

Benefits of a Lower Interest Rate

What are the benefits of having a lower interest rate?

Lower Monthly Payment

With a lower interest rate, your monthly car payment will be smaller. Over the course of the loan, that could save you thousands of dollars.

The chart below, based on myFICO.com’s loan savings calculator, shows how much you’ll pay in interest depending on your credit score. The numbers are an average of rates from lenders nationwide, based on borrowing $25,000 for 48 months.

FICO ScoreAPRMonthly PaymentTotal Interest Paid
720-8503.862%$563$2,021
690-7195.108%$577$2,694
660-6897.517%$605$4,024
620-65910.451%$639$5,696
590-61914.985%$696$8,388
500-58916.32%$713$9,205
From myFICO.com

Here are the figures for borrowing $25,000 for 48 months for a used car. 

FICO ScoreAPRMonthly PaymentTotal Interest Paid
720-8504.227%$567$2,217
690-7195.51%$582$2,913
660-6897.178%$601$3,835
620-6598.688%$618$4,685
590-61915.339%$700$8,603
500-58915.323%$700$8,594
From myFICO.com

The numbers above are for 48-month loans. But according to 2020 data from the credit bureau Experian, the average loan term for used card was 65.58 months and 69.68 months for new cars!

But note that Clark strongly advises against taking a loan out for longer than 42 months.

“If the payment on a 42-month loan on the vehicle you have your eyes focused on is backbreaking, it means you are buying more car than your budget really can stand.”

Higher Loan Amount

When I shop for cars, I like to get my monthly payment as low as possible.

But sometimes you’re shopping for a more expensive vehicle for a reason. A child on the way? You may be looking to upgrade to a minivan.

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Simple math tells us that, the lower the interest rate you can get on a loan, the more money you can afford to borrow.

To be Clark-smart, though, you should go through your budget and decide what monthly payment you can actually afford. Then, just make sure the amount you want to borrow doesn’t mean you’ll end up with a loan that’s more than 42 months long.

Ways To Pay Less Interest

With time (less than you think) and effort, there are steps you can take to increase the likelihood that you’ll get a lower interest rate on your next car purchase.

Raise Your Credit Score

Raising a credit score 100-150 points might seem daunting, but it can be done – perhaps more quickly than you think. Clark.com has articles that explain the factors that go into a good credit score and sneaky ways to improve your credit score.

A relatively new way to help get your score up is to participate in the Boost program from Experian. It takes into account your payment record on your utility bills which could help increase your score a few points.

And check out these ways to improve your credit score by 100 points in 30 days.

Join a Credit Union

Clark Howard has long recommended making a credit union an early stop when you’re shopping for a car loan.

“If you’re not a member of a credit union, go join one before shopping for a car,” Clark says. “Credit union car loan rates are usually about a point and a half lower than from a bank and will be typically as much as 4-6 interest rate points lower at a credit union than at a car dealer. So there’s huge money to be saved over time.”

Most credit unions are local or regional, so you’ll have to search your area for credit unions with the best rates. Clark advises shopping at a couple different credit unions before making a final decision.

If you’re not able to find a local credit union that fits, Clark recommends checking your eligibility at Navy Federal.

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Add a Down Payment

This one’s a double “win.”

Putting more money down and taking out a smaller loan can lower your monthly car payment.

A smaller loan will result in owing less in interest charges. Or it can help you afford the payment for a shorter loan term.

Clark has long advocated making a big down payment when you buy a car.

Get a Shorter Term Loan

A shorter term loan will mean a higher monthly payment, but that pays off over the length of the loan. That’s because a shorter loan will result in paying less in interest. Also, lenders typically offer lower rates for shorter term loans.

Even if the interest rate is the same, the savings are significant: more than $750!

Customer A
24-month loan
Customer B
36-month loan
Interest Rate7%7%
Loan Total$20,000$20,000
Monthly Payment$895.45$617.54
Total Interest Paid$1,490.84$2,231.51

MyFICO.com recognizes 720 as the preferred credit score when buying a car.

MyAutoloan.com also identifies a credit score of 720 or higher as the score you need to qualify for the best car loan rate. 

Clark agrees that’s a good figure and one that should be a threshold for your decision making process on taking out a loan for a car:

“You don’t want to take out a loan if your credit score is below 720. … The reality is, if you have a lower credit score, it means that you have a lot of financial heat in your life. I’d like you to lower the temperature by eliminating having to make a vehicle payment.”

But 720 isn’t everyone’s idea of the “ideal” score. According to Experian data from late 2020, you’ll need a credit score of 781 to be eligible for the lowest interest rate on a car loan. 

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Final Thoughts

If possible, you should wait on buying a new car until you can improve your credit score to at least 720. If that’s not a realistic goal, consider making (or increasing) a down payment and taking a shorter term on the loan to decrease the amount of interest you pay.

And remember to shop around, especially at credit unions, for the lowest rates.

More from Clark.com



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