Are you thinking about getting a new car? Is your credit score enough to get you approved? Check out this guide to see what credit score is needed to buy a car.
A credit score plays an important role in getting approved for a car loan. What’s the minimum credit score needed to drive a new car?
Your credit score is one of the most important factors in getting approved for an auto loan. Lenders use credit scores to determine your creditworthiness and your ability to repay the loan. The higher your credit score, the more likely you are to get approved for a loan with a lower interest rate.
If you’re not sure what your credit score is, you can check it for free on Credit Karma or you can visit any major credit bureaus. The three major credit bureaus in the US are Equifax, Experian, and TransUnion.
A good credit score is generally considered to be 700 or above. Average credit scores fall in the range of 640 to 699. Anything below 640 is considered poor credit.
If your credit score is below 700, you may still be able to get approved for a car loan, but you may have to pay higher interest rates. If your credit score is below 600, your chances of getting approved for a loan are slim.
If you have higher credit scores, you’re more likely to get approved for a loan with a lower interest rate. In general, the higher your credit score, the better your chances of getting approved for a loan.
If you’re looking to finance a new car, here’s what you need to know about credit scores and car loans.
Understanding credit score and how it works
Your credit score is a number that represents your creditworthiness. It’s based on information in your credit report, which is a record of your borrowing and payment history. Your credit history is already included in your credit report.
The higher your credit score, the more likely you are to get approved for a loan with a lower interest rate. A low credit score can make it difficult to get approved for a loan at all.
There are two main types of credit scores: the FICO credit score and VantageScores. The FICO score is the most commonly used type of credit score range. A good FICO score could range from 300 to 850. VantageScores, on the other hand, range from 501 to 990.
Similarly, there could be more than a single FICO auto score because there are multiple credit reporting agencies, and each one uses a slightly different formula to calculate your score. So, if you check your score with two different agencies, you may get two slightly different scores.
The most important thing to know about your credit score is that it’s just one factor that lenders look at when considering you for a loan. They also look at your income, employment history, and other factors.
On the other hand, if you have existing credit card debt or other loans, your credit score may suffer. This is because having more debt can make it harder to repay what you owe, and missed or late payments can damage your credit score.
How to get approved with a poor credit score
If you have a credit score of less than 700, you may still be able to get approved for a car loan, but you may have to pay a higher interest rate. Likewise, there are other ways you can get approved for car loans even if you don’t have the best credit score.
Here are some useful tips to get a new car with a bad credit score:
Get a Co-Signer
One of the best options is to get a co-signer. This is someone who agrees to sign the loan with you and be responsible for making the payments if you can’t. Having a co-signer with good credit can improve your chances of getting approved for a loan.
Likewise, the co-signer agrees to pay how much debt you have. In case you default on the loan, the co-signer will be legally responsible for making the payments.
Put Down a Larger Down Payment
Another option is to put down a larger down payment. This shows the lender that you’re serious about repaying the loan and that you have the financial means to do so. A larger down payment can also help you get a lower or an average interest rate.
Your monthly payments will be lower if you put down a larger down payment, which can help you afford the car.
Get a Short-Term Loan
If you’re not able to get approved for a traditional loan, you may be able to get a short-term loan. These loans are typically for 12 months or less and have higher interest rates. But, they may be a good option if you need a car right away and can’t wait to improve your credit score.
Most auto lenders will require that you have full coverage car insurance, so make sure to factor that into your budget when considering a short-term loan.
Consider a Buy-Here-Pay-Here Car Lot
If you’re having trouble getting approved for a car loan, you may want to consider a buy-here-pay-here car lot. These dealerships typically don’t require a credit check and may be more willing to work with you if you have a poor credit score.
Keep in mind that dealerships in the automotive finance market typically charge higher interest rates, so you’ll need to budget for that. You may also want to shop around at different dealerships to compare rates.
Get a Secured Loan
A secured loan is one where you put down collateral, such as a car or house, to secure the loan. This is a good option if you have bad credit because it shows the lender that you’re willing to risk your property to repay the loan.
Look for Special Financing Programs
Some lenders offer special financing programs for people with bad credit. These programs may have higher interest rates, but they can help you get approved for a loan.
Often, the automotive finance market has these types of programs, so it’s a good idea to shop around and compare rates.
Improve your credit score
If you’re looking to finance a new car, it’s important to understand your credit score and how it works. A low credit score can make it difficult to get approved for a loan, but there are ways to improve your chances of getting approved.
Improving your credit history also requires that you pay off existing debts from credit card companies.
Go car loan shopping
Each lending institution or auto financing has slightly different criteria for their car loan rates or what they consider to be a good credit score. So, it’s important to shop around and compare rates from different lenders. This will increase your chances of getting offered a different APR.
This also works for different dealerships or at a local credit union. Some dealerships are more willing to work with people who have bad credit. So, it’s important to shop around and compare offers from different dealerships.
Visiting multiple lenders gives you a better chance of getting approved for a loan with a lower interest rate.
Consider a longer loan term
If you’re having difficulty getting approved for an auto loan, you may want to consider a longer loan term. This will increase your monthly payments, but it may make it easier to get approved for an auto loan.
An auto lender may be more likely to approve you for a loan if you’re willing to extend the loan term. This is because it gives them more time to collect interest payments. So, if you’re having difficulty getting approved, consider a longer loan term.
A lower credit score can make it difficult to get approved for an auto loan, but there are ways to
Pay your bills on time
One of the best ways to improve your credit score is to make sure you’re making on-time payments. This includes both big bills like mortgages or car payments, as well as lenders to find the best option for you. Getting a new car is a big financial decision, so make sure you do your research before making a decision.
Paying your bills on time often results in an excellent credit score. If you think you’re struggling to make payments on time, consider signing up for automatic payments. This way, you can ensure that your bills are always paid on time.
Other simpler ways to get qualified for a car loan
While these are some effective tips, some simpler ways can help you get qualified for a car loan. There are other simpler ways to could prove to a lender that you’re able to pay off your car loan.
Even if it’s your first car purchase, it’s important to show lenders that you’re invested in the car and you’re capable of making payments on time. A down payment could also lower your monthly payments, making it easier to afford your car loan.
POI (Proof of income)
One way is to show steady employment for at least six months to a year. Lenders like to see stability and regularity when it comes to income. This helps them feel confident that you’ll be able to make your car payments on time, every month.
Savings
Another way is to show a large amount of savings. This shows the lender that you have the financial resources available to make your car payments, even if you hit a rough patch at work or despite any revolving credit you might have.
Credit unions want to know if you can make on-time payments. Your ability to make on-time payments can be mitigated by good savings. A good savings history will improve your chances of getting approved for a car loan.
Use References
You can also provide references from people who can attest to your character and financial responsibility. These can be friends, family members, or even previous landlords. Having somebody vouch for you can go a long way in convincing a lender to approve your car loan.
POR (Proof of residence)
Finally, you can also show proof of residence. This helps the lender feel confident that you have a stable address and aren’t likely to move soon. A stable address is another sign that you’re serious about repaying your car loan.
Consider a used car loan
If you’re having difficulty getting approved for a new car loan, you may want to consider a used car loan. Used cars are often easier to finance than new cars, and they can be just as reliable.
A used car loan is much more desirable if you have credit limits from a bankruptcy or other financial struggle instead of aiming for a new car loan.
When getting qualified for a loan, your debt-to-income ratio is also looked at. This is all your monthly debt payments divided by your gross monthly income. Lenders like to see a debt-to-income ratio of no more than 43%.
This means that your total monthly debt payments should be less than 43% of your gross monthly income. If you have a towering ratio you may have difficulty getting approved for a loan. Try bringing down this number by paying off some debt or increasing your income.
In Conclusion
Good credit scores are important if you’re looking to finance a new car. But, if you have bad credit, there are still ways you can get approved for an auto loan. Talk to different lenders, put down a larger down payment, or get a co-signer to improve your chances of getting approved.
Your financial stability and ability to repay your loan are the two most important factors when it comes to getting approved for a car loan. Make sure you know your FICO score and understand your credit report before you start shopping for a car loan. This way, you can be sure you’re getting the best deal possible.
While bad credit can hinder your chances for auto loans or make it difficult to finance a new car, it’s not impossible. By following these tips, you can improve your chances of getting approved for a loan.
Do you find this article helpful? Let us know your thoughts by commenting below!
