What Credit Score is Needed to Buy a Car

The straight answer to the above question would be a credit score of 600 to 625. But here’s an expiation. As mentioned above, the end of economic recession has seen substantial changes in the lending sector. The reason that questions such as ‘what credit score is needed to buy a car’ or ‘what is the credit score needed to buy a car’ are appearing is due to the reformed underwriting process. Before we discuss the credit score to buy a car, let us take a good look at how the reforms of the lending sector have changed the requirements that are needed to get an auto loan.

Auto Loan and FICO Credit

The revived automotive sector that took a hit in the recession is slowly coming into a swing, with the help of reforms and most importantly, the auto and car loans. In the pre-recession period, there were several auto finance, loan companies, banks and lending institutions that approved loans at much lesser credit score. That is, you would get a good auto loan, with a bit of a pricey interest rate or APR even if you had a credit score such as 500, on the usual FICO credit score rating scale, or something even below. In such circumstances the United States economy went into a recession and a severe economic bubble was seen. People who had borrowed loans with a lower credit score were not able to repay the debt on time, leading the lenders and the automotive sector into a considerable loss. Low credit scores mean that the borrowers had other debts and a poor repayment history, this meant that the lenders could not even recover much in foreclosures and bankruptcies.

Before you take a look at credit score for car loan, here are some features of the auto loan:

  • Auto loans are secured loans that have a monthly installment payment option.
  • The loan is often secured with the car itself, which means that in case of a non payment or default, your car could be (read: is) taken over.
  • In cases where the car is taken over, it is resold and any remaining value is returned to you.
  • Thus, in short, you will end up losing a big sum of installment money that you have already paid, plus the interest rate or APR.
  • Takeover of your car will appear on your credit report, reducing it to a really bad credit score.
  • Apart from the credit score, lenders also consider several other facts such as original cost of the car, fuel consumption, auto insurance premium, your other debts and your monthly income. If all these factors are conveniently accommodated in your monthly income then the loan is sanctioned.

What Credit Score is Needed to Buy a Car?

The lending policy has considerably changed since the recession and the credit score to buy a car has come up to a 600 to 625 range. The average credit score for car loans has shifted to a range of 690 to 719. It means that after 690 you can get a good, reasonable and repayable interest rate of about 6.388% for a 36 month auto loan. Though the credit score needed to buy a car, is about 600, I would recommend you to bump it up to 720 to 850 as in this range, an interest rate of about 4.883% can be obtained. This would help you to save a substantial amount of money. The time period of the loan is usually not affected the credit score scale, however, in case if you have past defaults on your credit history, the lender would not permit you take up a loan that goes for more than 48 months. Here is a small table that shows the credit score for car loan, the interest rates that would be charged on the loan, depending upon the credit score and the time period of the loan.

FICO Score Range36 months Interest/APR48 months Interest/APR60 months Interest/APR
720-850about 4.883%about 4.923%about 4.992%
690-719about 6.388%about 6.42%about 6.472%
660-689about 6.388%about 8.331%about 8.381%
620-659about 11.905%about 11.932%about 12.01%
600-619about 17.744%about 17.772%about 17.84%

One rule of thumb goes that the longer your loan term, that is the time period, lesser would be your per month installment. A really good credit score will help you to get good interest rates plus a longer term. However, make sure that you calculate and plan your installments.

Today, a bad credit score will get you a loan denial. The lowest credit score to buy a car is 600, however, pushing up the credit score will help you save a substantial sum of money. A last trick to successfully carry out the transaction is to make a provision in the bank which would help you to repay the first few month’s installments. Keep on putting aside some amount of your monthly income into this provision, so that you are able to pay off every monthly installment on time. I hope that the elaboration on ‘what credit score is needed to buy a car’, is resourceful. Good luck.