You don’t need some magic credit score to get a car loan. Most people and most credit scores — good or poor — can get one. The catch is that, as a rule, a lower score means paying a higher interest rate for the loan, and more of your monthly payment going toward paying for the loan rather than the car.
That’s because your credit score attempts to measure your creditworthiness as a borrower — the likelihood you’ll keep up with the payments and make them on time. A low score means the lender is taking more risk and will want to be paid more in interest. It also could mean you’ll have fewer options for lenders and potentially stricter loan terms from those that approve you.
A better question might be what credit score do you need to get a pretty good loan, even if you can’t get the best rates reserved for pristine credit scores? A score that’s just average should be just fine.
Beyond the general rule that a lower credit score equals a higher interest rate, things get a little complicated. For starters, you don’t have just one credit score. Your score can vary among the three biggest national credit agencies: Experian, Equifax and TransUnion. They track things slightly differently on different schedules, and all your lenders might not report to all three of them. The agencies use information in your credit report to generate a three-number credit score using models that also vary — FICO and VantageScore models are the most common, with more lenders using FICO. They also offer specific submodels geared to specific types of loans.
The basic FICO scores run from 300 to 850 and classify creditworthiness as poor (below 580), fair (580 to 669), good (670 to 739), very good (740 to 799) and exceptional (800 up). The FICO model describes good scores as “near or slightly above the average of U.S. consumers.” According to Experian, the average FICO score for Americans in 2020 was 710, and two-thirds of Americans had a score of at least 670.
An average score still can qualify for a relatively low-cost loan compared to the top levels. Experian reported that for the fourth quarter of 2020, the average new-car loan rate for scores of at least 661 was only about 1 percentage point higher than the interest rate for scores above 780. On used-car loans, which have higher rates overall, the spread still was less than 2 percentage points.
To put a percentage-point difference in dollar terms, a $30,000 loan on a new car for 60 months at 3% works out to $539 in estimated monthly payments, with $2,340 in total interest paid over the life of the loan. At 4% for 60 months, the payment would be $552 and total interest would be $3,120. You can compare costs for various rates you might be offered using Automotiveng car loan calculator.
Below that average level, however, interest rates start to climb. The loans also might have more restrictive requirements on the down payment, maximum amount and loan length, and the choice of lenders will be more limited. Experian reported that average used-car rates for scores below 600 were nearly 13 percentage points higher than for scores above 780 and about 16 percentage points higher for scores below 500. Still, such scores did not mean buyers could not get any loans at all. Experian reported that in the same period, borrowers with these credit levels still accounted for about 18% of loan transactions on new and used vehicles. See more details on getting car loans with spotty credit.
To know what to expect when you shop for a loan, you need to know your credit scores, and it’s free to check them. Under federal rules, you can get a free credit report from each reporting agency every 12 months, but during the COVID-19 pandemic, Equifax, Experian and TransUnion have been making a free check available once a week. That service recently was extended through April 2022, and all three scores are available at a combined site. Getting your report can also let you see areas to work on if you are trying to raise your score for a better loan, as well as spot and dispute any errors. The federal Consumer Financial Protection Bureau has resources on credit reports, improving credit scores and spotting errors.
A credit score is a major factor in your loan rates and choices, but it’s not the sole criteria. Lenders consider more than just your score. The typical full loan application (what you’ll likely end up filling out, even if you start with a shorter form online) will ask for information such as your job or jobs, how long you’ve held them and your monthly income. Also, be prepared to answer whether you own or rent your home and how long you’ve lived there. Applicants with lower scores might need to furnish more details, such as assets, bank accounts and monthly expenses, including such things as child support. Depending on the answers, this added information could make you seem like a lower risk than your score alone would indicate, thus helping you get a better loan.