Confused About How Much Credit You Need to Buy a Car? Find Out Here
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Can you still buy a car if you have a low credit score?
The answer – in short – is probably yes. Sellers want to move cars and accommodate buyers who have a less than perfect credit history. Some lenders are inclined to work with poor credit reports, albeit with less favorable loan terms.
Still, securing financing can be an intimidating aspect of purchasing a vehicle. Not only do you need an auto loan to spread out the cost over some time, but you also want the lowest interest rate, so your monthly payments are as low as possible.
The most significant factor in obtaining an auto loan and getting an advantageous interest rate is your credit score. Lenders need to know they can trust you to make payments on time over the loan term, and your credit report is the best indicator of that.
How much credit do you need to buy a car? Let's take a closer look at what to expect when you apply for financing.
What credit score is needed to buy a car?
There isn't a one-size-fits-all minimum credit score required to qualify for an auto loan. Different lenders have their guidelines on the lowest acceptable score along with other financial factors.
When a lender researches your financial background, it's more comprehensive than just looking at your credit score number. Lenders also consider your payment history on various obligations, other debts you owe, and your current income. These aspects of your fiscal records paint a clearer picture for lenders, so they know what they're getting into should you be approved.
While your FICO credit score is the industry standard, another to consider is your FICO Auto Score. While a traditional FICO score ranges from 300 to 850, the FICO Auto Score is more industry-specific and covers an assortment of scores from 250 to 900.
What lenders are after are borrowers that have demonstrated reliability and steadiness with their personal finances.
What auto loan credit score will secure you financing? While there's no set number to qualify, know if your score is low, you'll face questions from lenders along with higher interest rates.
Applying for a car loan and securing financing is a complex process. Finding the best lender to work with takes up your valuable time. Why not let someone you can trust take care of the details? Shift works with a network of trusted lenders to find you the best deal on financing.
Car loan interest rates by credit score
Lenders need to know they can trust borrowers to pay back loans, and subsequently, their interest rates correspond to those they believe they can trust. Higher credit scores indicate financial responsibility and reliability, while lower ones demonstrate a lack thereof, whether fairly or not.
Depending on your credit score, you could be looking at a difference in auto loan interest rate of more than 10 percent. The higher percentage rate for poor credit reports is just a way for lenders to protect themselves, should the loan not be paid back. But higher interest rate loans allow buyers with less than stellar credit to get the car they want, albeit at an increased cost.
There are five categories of credit score, ranging from highest to lowest: super-prime, prime, nonprime, subprime, and deep-subprime. Their corresponding values are 781–850, 661–780, 601–660, 501–600, and 300–500, respectively.
According to the credit reporting bureau Experian, Super-prime borrowers pay an average interest rate of 3.24 percent when buying a new car. Conversely, deep-subprime buyers pay a premium to secure financing, owing an average of 13.97 percent interest throughout a loan.
The rest of the credit score categories fall somewhere in between those two.
Buying a used car can be challenging. Where can you go to find a vehicle that's in excellent shape and will be reliable year after year? Shift has a wide selection of cars to choose from on their easy-to-use website, all thoroughly inspected by certified mechanics. Every vehicle sold passes a 150-point inspection and comes with a free Carfax report, so you can trust that the used car that you’re buying is as good as new.
2016 Nissan Maxima 3.5 S (from $20,500)
Obtaining a loan with bad credit
If you have bad credit, you may be concerned about securing financing on your next car purchase. Fortunately, there are strategies you can use to convince auto lenders you're a safe candidate.
First, get a free credit report from one of the major credit bureaus, like Experian. It's good to keep this information handy as you look for financing so that you can provide it to potential lenders.
Next, seek out lenders who specialize in buyers with poor credit. They may have additional options for low credit borrowers as opposed to traditional financial institutions.
A co-signer is an excellent way to reassure financial institutions you're a dependable borrower. Finding a trusted family member or friend to sign on the dotted line next to your name binds two people to the loan obligation, offering the lender an additional guarantee of payment.
Making a down payment on your purchase may convince lenders you're less of a liability and help you secure a loan. The larger your down payment, the better, as your monthly car payments will be less, and you may get more favorable loan terms, too.
Whether you're looking for a full-size truck or want to drive country roads in a convertible, Shift has the used car for you. And with Shift, you'll get a fair, no-haggle price driven by powerful machine learning algorithms and tons of data.
Ways to improve your credit score
If you have a low credit score, you can use strategies to improve it and hopefully secure financing.
You can begin by paying off past-due balances and ensuring all financial responsibilities are up to date.
Next, make sure you pay all of your obligations on time, further illustrating you're a dependable person.
Lower your revolving debt as best you can. Revolving debt is the percentage of available credit you've utilized, such as a credit card, and is significant in determining your credit score. Getting this number below 30 percent can swiftly improve your score.
Have you decided on the used car you want but want to test drive it first? If you live in one of Shift's many service areas, you can do just that without leaving your home. A Shift concierge will drive the vehicle to you, letting you get a feel for the interior and performance before signing the papers.
2012 Volkswagen Beetle 2.0T (from $12,950)
Credit scores and car buying in summary
While your credit score is a significant factor in obtaining financing for your vehicle purchase, there are still ways to obtain a loan if it's low. You can take steps to improve your score, get a co-signer, and seek out specialty lenders who regularly deal with customers facing financial challenges.
When you have poor credit and want to buy a car, it's a matter of knowing where to look and who to talk to to find the best way forward.
When you buy a used car, it's nice dealing with a seller you can trust. Shift has a seven-day refund policy on every vehicle they sell. Should you be unsatisfied with your purchase, you can return it for a full refund, no questions asked.
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All prices are based on vehicle availability and pricing as of
April 15, 2022
Pricing shown is not guaranteed and does not include taxes or other product fees.