What Credit Score Is Needed to Buy a Car?

Austin KilhamUpdated August 21, 2023

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

Your credit score is one of the most important factors that auto lenders consider when deciding whether to offer you a loan. It also has a big impact on the terms and interest rate you may be offered.Getting car loans with bad credit is possible, but you may receive less favorable terms and higher interest rates than borrowers with good credit. That can translate into a more expensive car in the long run. A good credit score makes it more likely that you’ll receive an affordable loan with manageable terms.Understanding your credit score, how it can impact the loan you’re offered, and how to improve your score can help you secure an auto loan you can afford.

What Is a Credit Score?

When you’re in the market for a car or you need to take out a small business loan or personal loan or you’re trying to buy a house, your credit score is one of the most important criteria lenders use to decide whether to offer you a loan. It is represented by a three-digit number, usually between 300 and 850, and it indicates to lenders how likely you are to pay off your debts. A number of factors affect your credit score, including your payment history, how much debt you carry, and the length of your credit history.This credit information is gathered by the big three credit reporting bureaus: Equifax®, Experian®, and TransUnion®. Credit scores may vary depending on which scoring model each bureau uses. What’s more, different lenders will likely have different criteria for the scores they require to issue loans or give good terms on them. They may even gather other information, such as your income, that isn’t included in your credit report to help them make a decision. Generally speaking, credit scores may be evaluated as follows:

300–579: Poor
580–669: Fair
670–739: Good
740–799: Very Good
800–850: Excellent

As this list suggests, a high credit score signals to lenders that you’ve been responsible with your credit in the past, paying a range of bills on time. It may make lenders more confident as they consider whether to loan you money, which can translate into favorable credit terms, including lower annual percentage rates (APRs).The average credit score in the U.S. is 714 as of 2022. Borrowers with good-to-excellent credit may qualify for 0% APR car loans.Recommended: Which Credit Bureau Is Used Most for Auto Loans?

Why Is Your Credit Score So Important When You’re Buying a Car?

Simply put, when you’re buying a car, a good credit score is important because it’s likely to lead to lower interest rates. Having a high credit score can potentially save you thousands of dollars over the life of your loan.Say you have poor credit with a deep subprime score between 300 and 500. And let’s also say that you want to buy a $25,000 car with $2,000 down and you’re offered a 60-month loan with a 14% interest rate. Your monthly payment would be $535, and over the life of the loan, you’d pay over $9,000 in interest on top of the $25,000 car loan principal.Now, say you had a good credit score, in the 670–730 range, and you’re offered a 7% interest rate. Your monthly payment would be $455 and you’d pay about $4,300 in interest over the life of the loan. That’s less than half of what you’d pay if you had a poor credit score.Your credit score is also important if you’re looking to refinance your car loan. You can apply for auto refinancing if you’re interested in securing a lower monthly payment on your car loan.

What Credit Score Do I Need to Buy a Car?

The lower your credit score, the higher the chances that your auto loan application will be rejected or that you’ll be charged a higher interest rate. Borrowers with bad credit may qualify for subprime auto loans. Generally speaking, you’ll need a score of 700 or above to qualify for the lowest rates. Buyers with these rates are at the top of the credit score range.To get more specific, interest rates are likely to skyrocket as your credit score drops below 700. Buyers with scores in the 601 to 660 range may expect interest rates that are double those offered to top-tier credit scores. People with scores in the 300 to 600 range could see loan rates above 14% APR on new car financing and 20% APR on used car financing, according to Experian.The average car loan interest rate for new car financing is typically lower than the average interest rate for used car loan financing. Note that some predatory lenders may offer secured car loans above 20% APR. In this case, consumers must carefully weigh their need to own a new or used car with the punishing cost of high interest over the life of the loan.Recommended: Is an Auto Loan Secured or Unsecured?

Can I Get an Auto Loan with Bad Credit?

You can almost certainly get an auto loan with bad credit. However, it will probably cost you more and might ultimately be detrimental to your finances. For example, if you take out a loan with an extremely high interest rate, you may find yourself falling behind on payments. That could further hurt your credit, making it even more difficult for you to secure affordable loans in the future. Consider getting prequalified by a trustworthy lender for an auto loan before you go to a dealer. That may help you protect yourself from being put on the spot and convinced to accept an unfavorable loan. After you get prequalified, you can shop around for a car loan with monthly payments and interest rates you can afford. You may also be able to secure a better loan with poor credit if you can increase the amount of your down payment on a car.

How Can I Monitor My Credit Score?

Because your credit has such a big effect on the loans you’re likely to receive, it’s important to monitor your score regularly.Start by checking your credit reports with the three major credit reporting bureaus. You can request a free report from each of them once every 12 months. Check your credit reports regularly to make sure they’re correct, and alert the bureaus immediately if any changes need to be made.The credit reporting bureaus don’t generally offer free credit scores, but you have a couple of other options for getting yours. First, many banks and credit card companies now offer free credit scores as a service to their customers. You may be able to find it on your statement or on your online account.You could also engage a credit monitoring service, which may offer free access to one or more of your credit reports or may charge a monthly fee. In either case, the service will probably alert you when there are unexpected changes to your credit score.

Will a Car Loan Hurt My Credit Score?

Getting a car loan could hurt your credit score if the lender conducts a hard inquiry into your credit report. A hard inquiry can remain on your credit report for two years, and the initial impact may cause your credit score to drop several points.A car loan can also damage your credit if you miss payments and default on the loan. You can lose your car to repossession if you fail to make required payments on a secured auto loan.

The Takeaway

Getting a new or used car loan with bad credit is possible. It’s also possible to refinance your existing car loan for a better rate and lower monthly payment. (Refinancing for a longer term may increase your total interest costs.)If you’re interested in auto refinancing, Lantern by SoFi can help. Just provide basic details about your current car loan and explore prequalified rate offers within minutes. Refinancing may be right for you if you can secure a lower interest rate.Lantern helps you compare auto loan refinance rates.

Frequently Asked Questions

Can you get a car loan with bad credit?

What credit score do you need to get a 0% APR car loan?

What credit score do you need to refinance your car loan?

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About the Author

Austin Kilham

Austin Kilham is a writer and journalist based in Los Angeles. He focuses on personal finance, retirement, business, and health care with an eye toward helping others understand complex topics.

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