What Is a Good Credit Score For a Car Loan?

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Obtaining credit to buy a car is generally far easier than getting a loan to buy a house. In fact, even individuals with poor credit can
often get auto loan financing
.
Having a good credit score, however, gives you more purchasing power and often lower interest rates.
What constitutes a good credit score when buying a car, and how much difference can it make in what you pay? Here's what you should know.
And if you want to save up to buy a car with your credit, consider shopping around for
cheaper car insurance
while you're at it.
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What is a good credit score to buy a car?

In some ways, a good credit score is the same across the board, or at least across the credit reporting agencies of Equifax (660+), Experian (670+), and TransUnion (658+). That’s because it's not that difficult to obtain financing to buy a car. A person with a fair credit score, for instance, can usually get an auto loan with little difficulty.
The average credit score of people who buy used cars is 656, which falls into the fair range. The average credit score for those who buy new cars, on the other hand, is 717.
While credit score may not impact whether an individual gets a car loan, it can impact the financing terms.

How credit scores affect auto loan interest rates and payments

With a higher credit score, the interest rates are lower for auto loans. This also results in lower payments due to paying less interest.
Using data from Experian, one of the three main credit bureaus, here is a breakdown of how a good credit score to buy a $20,000 used car impacts rates and payments on a five-year loan in relation to other levels of credit:
  • Score of 300 to 500: 20.09% interest, $531 monthly payment
  • Score of 501 to 600: 17.36% interest, $501 monthly payment
  • Score of 601 to 660: 11.38% interest, $439 monthly payment
  • Score of 661 to 780: 6.54% interest, $392 monthly payment
  • Score of 661 to 780: 4.77% interest, $375 monthly payment
Similar impacts of credit score on interest rates and monthly payments are apparent in the following table for a five-year loan on a $32,000 new car loan:
  • Score of 300 to 500: 14.7% interest, $756 monthly payment
  • Score of 501 to 600: 12.2% interest, $715 monthly payment
  • Score of 601 to 660: 8.12% interest, $651 monthly payment
  • Score of 661 to 780: 5.17% interest, $606 monthly payment
  • Score of 661 to 780: 4.23% interest, $593 monthly payment
While the two tables both show a corresponding decrease in interest rates and payments with an increase in credit score, there is a major difference. Interest rates are lower with a new car purchase than with a used car purchase.
This is because people with good credit tend to buy new cars and have lower repossession rates than people who buy used cars with loans.

How to buy a car with less than a good credit score

The first rule of buying a car without a good credit score is to shop around. Financing is out there and you want the best deal, but that perfect deal may not be the first offer you get.
In general, in-house financing from the auto dealership comes with higher interest than that you will find elsewhere. In-house financing often does not report to the credit bureaus, which means your payments would not build better credit for future purchases.
Check with your bank first. A bank is often your best chance at getting auto financing without a good credit score to buy a car.
If you can't work with your bank to get an ideal loan, try other lenders.
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