What to Know About Car Loans and Credit Scores
Applying for a car loan soon, and wondering whether your credit score will qualify you for the affordable financing you need? In this short guide, we’ll go over what you need to know about car loans and credit scores.
What Credit Score Do You Need to Qualify for a Car Loan?
Technically, you have multiple credit scores. But the one that the majority of lenders tend to use is your FICO credit score. Below, you can view the FICO credit score ranges to get an idea for what your score means.
FICO Credit Score Ranges
- 750-850: Great Credit
- 680-719: Good Credit
- 630-679: Fair Credit
- 550-629: Subprime Credit
- 300-549: Poor Credit
Now that you are familiar with the FICO credit score ranges, let’s take a look at the average APRs for new and used car loans in different credit score ranges. This will help you understand what, for auto loans, credit scores need to be.
The data below comes from Experian:
In 2017, Experian revealed that 20% of auto loans were originated for borrowers with credit scores of 599 or below. 4% of auto loans went to borrowers with scores of 499 or below.
What does this tell us? You can have a fair or poor credit and still qualify for an auto loan. In fact, even if your score is under 600, there is still a fairly large selection of lenders who are willing to cater to you.
That being said, it is still beneficial to have a high credit score when applying for an auto loan. Not only will you have an easier time getting approved, but the higher your credit score is, the lower your interest rate will be. You can see clearly that someone with a credit score which is good or great is going to be paying significantly less money in terms of interest than somebody whose credit is subprime or poor.
There are some options for raising your credit score even with only a short time period available in which to do it. If you have enough financial liquidity, you also can offset your low score to some degree by putting more money down on your vehicle purchase.
How Can You Raise Your Credit Score Before Applying for an Auto Loan?
Here are a few simple ways to attempt to raise your credit score before applying for a car loan:
- Start by ordering your credit reports to check whether they are accurate. If you find mistakes on your reports which are lowering your score, submit corrections.
- If your credit utilization is currently over 30%, reduce it beneath that threshold.
- Have you been timely with your utilities and phone payments? If so, one of the fastest ways you can increase your score is by signing up for Experian Boost.
- If you have a few loans that you can afford to pay off, doing so may help your score.
- Catch up on any bills that you are behind on.
- See if any of your creditors are willing to forgive past lapses if they were rare occurrences.
Where Can You Find Auto Loans for Bad Credit?
Although some local dealerships may offer bad credit car loans, we recommend applying for an auto loan for poor credit online as this gives you access to a wider spectrum of loan offers. The lenders we recommend do not require collateral. Instead of running a hard credit check, they use a soft credit check which doesn’t damage your score as a responsible lending practice. Check out our recommendations or keep exploring our other posts to learn more about how to refinance car loans and bad credit auto loans.