What credit score is needed to buy a car?
If you need to finance a fresh or used vehicle, pay close attention to your credit score. Lenders use it to determine the rate you’ll get on a loan or whether you’ll get a loan at all.
Those with higher scores generally receive the best rates, and finding the cheapest possible financing is becoming more significant as the amount and length of auto loans resumes to grow.
The average loan amount for a fresh vehicle in the third quarter of two thousand sixteen was $30,022, up four percent from the same period a year prior, according to data from credit bureau Experian. For used vehicles, the average loan amount was $Nineteen,227, up two percent from the year prior.
At the same time, average loan terms for fresh and used vehicles hit sixty eight and sixty six months, respectively.
The average credit score needed to buy a car: Borrowers who received financing for a fresh car in the third quarter had an average credit score of 714. Those who borrowed funds for used cars had an average score of 655.
Experian uses a credit score model of three hundred to 850, with super prime borrowers at the top and deep subprime borrowers at the bottom.
If your credit score doesn’t hit the average mark, you might still qualify for a loan. Almost twenty three percent of loan financing in the third quarter went to those with subprime and deep subprime credit (those with scores of six hundred and below). Around fifty seven percent went to prime and super prime borrowers (those with scores of six hundred sixty one and up). The rest went to the nonprime market, those with credit scores inbetween six hundred one and 660.
Still, subprime and deep subprime borrowers are watching less of the market share.
“This quarter’s report shows that lenders are reducing the percentage of loans to the subprime and deep subprime risk tiers while enhancing the percentage to consumers with good credit,” Melinda Zabritski, Experian’s senior director of automotive finance, said in a press release.
Car loan rates by credit score: If you’re a super prime borrower with a credit score of seven hundred eighty one and above, you can expect to get the lowest rates. In the third quarter, super prime borrowers received a fresh car loan rate of Two.6 percent on average.
But if you’re a deep subprime borrower with a credit score of five hundred and below, you can expect to pay around five times more for a fresh car loan. Deep subprime borrowers received a fresh car loan rate of 13.53 percent on average.
What you can expect to pay: The average payment in the third quarter on a fresh loan was $495 per month. For a used vehicle, the average was $362.
Super prime borrowers financing a fresh vehicle will pay a little less. If that’s you, expect your monthly payment to land somewhere around $475, assuming you’re financing a $30,000 loan for sixty eight months at a rate of Two.6 percent.
Deep subprime borrowers can expect to pay around $634, or $159 more for the same loan. They’ll also pay almost $Ten,900 more in interest over the life of the loan.
Before you shop: If you fall in the subprime or deep subprime category, you’ll need to take some steps to improve your credit score if you want to receive the cheapest possible financing.
Here are just a few ways to begin improving:
■ Pay all of your bills on time, every time.
■ Keep your credit balances low.
■ Open fresh credit only when you need it.
It’s also significant to check your credit report consistently for errors, regardless of which credit tier you fall into.
Look for the best financing: Once you commence shopping, get quotes from numerous lenders and aim to get the lowest rate possible. Even a puny difference in interest rate can have a significant influence on the amount you pay over the life of the loan.
The bottom line: While it’s possible to get a car loan with subprime or deep subprime credit, you’ll be better off financially in the long-run if you can wait out purchasing a vehicle until your credit improves.
Putting a hefty down payment on a vehicle can also lift some of the financial cargo of financing. Overall, prime and super prime borrowers receive the most car loans and the best rates.