Updated April 15, 2021
If you are in the market for a new car and don't have enough cash to pay for it in full, you probably wonder if your credit score is good enough for an auto loan.
While there is no specific minimum credit score to buy a car, your credit rating is an important factor in the financing approval process and determining your interest rate. In fact, according to FICO®, most auto lenders use what's called a FICO Auto Score as part of their lending decision.
If you are wondering, "What is a good credit score to buy a car?" you have come to the right place. Your credit score matters a lot when buying a car. Let's take a look at what you need to know about credit history and auto financing.
What credit score is needed to buy a car?
You will likely need a credit score of 500 or above to qualify for an auto loan. A credit score range of 780 or better typically gets you the best rates.
There are two main factors lenders look at when approving an applicant for an auto loan.
- Credit Score & Credit Report: The first place a lender will look is likely your credit score, which is used as a starting point to decide if borrowers qualify and to set interest rates. A higher credit score improves your odds of approval and helps you qualify for the best available rates.
- Income & Debt-to-Income Ratio: Your debt-to-income ratio looks at your income compared to existing debt payments. Lenders use this data point to determine if you can afford the monthly payments for a new loan.
According to Experian data in the second quarter of 2021, the lowest auto loan rates are reserved for people with a higher credit score above 780 (also known as a prime credit score). Borrowers with a subprime credit score below 500 have difficulty getting approved for car financing.
If approved for auto financing from a bank or credit union, borrowers with subprime credit pay higher interest rates of about four to five times more for a comparable loan.
What credit score do you need to buy a car?
In some cases, you may be able to get a car loan with a lower credit score, as low as 500. This would be considered a subprime loan and likely requires a very high-interest rate (see examples below). You’re more likely to get a more reasonable rate with a minimum credit score of 660 when applying for a car loan.
To understand why, here’s an example looking at two borrowers who need a loan for the same amount but at different interest rates.
Let’s say these two people are buying a quality used vehicle with a $10,000 loan. Let’s assume the borrower with excellent credit gets a 4.3% interest rate while the subprime borrower has to pay 13.2%.
Loan 1 (Excellent Credit):
- Loan amount: $10,000
- Loan Term: 5 years
- Interest rate: 4.3%
- Monthly payment: $186
- Total repayment cost: $11,131
Loan 2 (Subprime Credit):
- Loan amount: $10,000
- Loan Term: 5 years
- Interest rate: 13.2%
- Monthly payment: $229
- Total repayment cost: $13,713
As you can see with the math here, the borrower with excellent credit pays $43 less per month. Over a five-year loan, that adds up to saving $2,582 by having great credit. You can do your own analysis using an online calculator like those provided by Bankrate or myFICO.
Is there a minimum credit score needed to buy a car?
Let’s look back at the minimum credit score you can have to buy a car. Keep in mind, If you have enough saved to buy the car with cash, you don’t need a loan, and your FICO score won’t come into play. You only need a minimum credit score to buy a car when you finance the purchase.
Above, we mentioned that borrowers who have low credit fall into a category called subprime. Subprime auto loan borrowers typically need a minimum credit score of 500. With a score of 450 or above, there’s a chance you could get a “deep subprime” loan, but the interest rate may be so high that you’re better off skipping the car purchase for now if you can.
If you can patiently build your credit score to at least 660 or slowly save up a larger fund to buy a car, you’ll have an easier time buying a car and making the payments than if you were to get a subprime or deep subprime car loan.
How your credit score impacts your car loan
The interest rate you pay will reflect your credit score. If you don’t have the top or bottom qualifying FICO credit score, you may find that you’ll have an interest rate somewhere in the middle.
Interest rates fluctuate based on market conditions, where you borrow, and your credit score. You can shop around to find better rates but can’t do much about the market’s interest rates. However, you do have influence over your credit score and can work to build the best possible score.
Most auto loan lenders use these common categories when grouping applicants together to decide rates:
Very Poor Credit (300-579)
These borrowers may struggle to qualify for a car loan. If you do qualify, you can count on paying the highest interest rates. Borrowers with very poor credit scores typically have many late or missed payments, bankruptcies, or other serious negative information on their credit report. Borrowers in this range would pay around 14.4% for a car loan, according to Experian.
Fair Credit (580-669)
Borrowers with fair credit should have an easier time getting approved for a car loan but probably won’t get very good interest rates. Again, most borrowers in this category have a history of late or missed payments that drag down their score. Always paying the minimum payment by the due date helps you build a good or better credit score. In this range, auto loans typically have an interest rate of around 7.5% APR.
Good Credit (670-739)
Borrowers with good credit scores shouldn’t have any problem getting approved for a loan and will start to see better interest rates. While they probably won’t get the best rates, they won’t be too far off. A late payment or a high credit card balance may be all it takes to drag your score down from exceptional to good. Borrowers in this range will pay around 4.5% for a car loan.
Very Good Credit (740-799)
Very good credit scores are typically reserved for borrowers with a history of on-time payments and low credit balances. These borrowers typically have multiple credit accounts and a history showing they can manage multiple accounts with on-time payments and get close to the best interest rates available.
Excellent Credit (800-850)
In the top category, borrowers have many credit accounts with a perfect on-time credit payment history and low balances. Borrowers in this category have their pick of lenders and the best interest rates.
Does credit score matter differently if buying a new vs. used car?
Whether you’re buying a brand new car or a used car, your credit score will have a similar impact. Loans for new cars sometimes have better interest rates than used cars, but a borrower with good credit will typically get a good interest rate regardless of the type of car they choose.
For example, according to Experian, borrowers with a credit score of around 700 would pay about 4.68% for a new car compared to 6.04% for a used car.
If you buy a reasonable, reliable used car with a slightly higher interest rate, you’ll still probably save a bundle compared to buying a brand new car with a lower interest rate. New cars cost more than used cars and lose most of their value when you drive them off the lot. Even with higher interest rates, buying a used car is typically a better financial decision.
In either case, you are usually better off buying a car with a loan than choosing a car lease. (See our related article about credit scores and car leases.) With a lease, you are effectively renting the car and have to give it back and the end of the lease unless you’re willing to make a big payment to buy it outright. When you buy with a loan, you own the car in the end and can choose to sell it or keep it for years to come.
How to get a car loan with bad credit
With a bad credit score or a history of bankruptcy, your income is a much bigger factor in getting a car loan. Negative items in your credit report don’t disqualify you from a car loan, but you can expect to pay more and may be required to make a much larger down payment.
Here are a few other ways to get a car loan with bad credit:
- Research car financing options – Take some time to look at different cars and figure out what you can afford. Getting an idea of the interest rates for your Vantage or FICO credit score range will help you narrow down your options to monthly payments that you can manage.
- Choose a down payment – Consider making a larger down payment. This will help to reduce your monthly payments and interest rate, resulting in a shorter loan term.
- Find a cosigner – If you can, consider asking someone with good credit to cosign your application. This can lead to a potentially lower interest rate and increase your chances of approval. So, be sure to read up on what a cosigner is for more information if you consider using this method.
All of these tactics will help you appear more reliable to lenders, increasing your chances of receiving a car loan.
How to raise your credit score for a car loan
If you are worried about being subprime and getting approved or just want to save money with a lower interest rate, you can take action today to improve your credit score. First step? Check your credit report from the credit reporting agencies (you can get a free copy every 12 months from each bureau at annualcreditreport.com) to see where you stand and how you can improve your credit rating.
Be sure to build on-time payment history with the major credit bureaus and keep revolving credit balances low since they are the two most important factors in your credit score.
Once you get on the road, know that your credit score can affect your car insurance rates, so it pays to keep improving your credit.
If you are new to credit or have a bad credit history, consider credit-building methods like a secured credit card or credit builder loan to establish and potentially improve your credit.
No one has to be stuck with poor credit. You're in the driver's seat and have the power to get on track for an 800+ credit score, and the very best rates around from an auto lender.
MyFICO. "What Credit Score Do You Need to Buy a Car?" https://www.myfico.com/credit-education/blog/credit-score-to-buy-car, Accessed March 9, 2022
Experian. "State of the Automotive Finance Market Q2 2021". https://www.experian.com/content/dam/noindex/na/us/automotive/finance-trends/state-of-auto-finance-q2-2021.pdf, Accessed March 9, 2022
Creditkarma. “What’s the minimum credit score needed for a car loan?".
https://www.creditkarma.com/auto/i/credit-scores-car-loan, Accessed April 16, 2021
The Balance. "What Credit Score Do You Need to Buy a Car in 2020?" https://www.thebalance.com/credit-score-needed-to-buy-a-car-4771942, Accessed April 15, 2021
About the author
Eric Rosenberg is a former bank manager and corporate finance worker with a bachelor’s degree and MBA in finance. His work is featured at Business Insider, Credit Karma, The Balance, Investopedia, and many other websites and publications.
About the reviewer
Lauren Bringle is an Accredited Financial Counselor® with Self Financial– a financial technology company with a mission to help people build credit and savings. See Lauren on Linkedin and Twitter.
Our goal at Self is to provide readers with current and unbiased information on credit, financial health, and related topics. This content is based on research and other related articles from trusted sources. All content at Self is written by experienced contributors in the finance industry and reviewed by an accredited person(s).