Although more than 68% of cars are offered to people with a credit score of 661 or higher, you still have more options if your credit score is below this limit.
Buying a good car is everyone’s dream, with it being a huge financial step. A 2023 report by credit bureau Experian found that more than 68% of cars with a credit score above 661 were financed.
The report also found that the average credit score for buying a used car loan was 684, while the average score for buying a new car loan was 743.
If your credit score is low and you want to take a car loan, you can take it, but it may increase your interest rate, due to which you will have to pay more.
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What minimum Credit Score is needed to buy a car?
Because lenders have different standards, there isn’t a specific score you need to have to buy a car, but most borrowers have a score of 661 or higher.
About 13% of financed cars are offered to borrowers with credit scores ranging from 501 to 600, compared to less than 2% for those with scores of 500 or lower, as reported by Experian.
How Credit Scores Affect Auto Loans
There are different interest rates according to different credit scores. That is why it is important for you to know what your credit score is and how much interest can be charged on it. Generally, the higher your credit score, the lower the interest rate. You can find out from the table given below.
| Credit Score Range | Average APR for New Car | Average APR for Used Car |
|---|---|---|
| Superprime (781-850) | 5.64% | 7.66% |
| Prime (661-780) | 7.01% | 9.73% |
| Nonprime (601-660) | 9.60% | 14.12% |
| Subprime (501-600) | 12.28% | 18.89% |
| Deep Subprime (300-500) | 14.78% | 21.55% |
Other factors aid in buying a car with poor credit.
Bring a Big Down Payment
Bringing a larger down payment can reduce your monthly payments, which can balance your credit score. A larger down payment can help you get a lower interest rate.
Bring documents showing financial stability
If you have a low credit score, but you have stability in other areas of your financial life, potential lenders are likely to view you as a low risk.
Increase credit score before buying a car
- Bill payment on time. Payment made after 30 days can hurt your credit score, so pay your bills on time.
- Do not apply for any other loan within six months of applying for the tax loan.
- The limit you have on your credit card and how much you use it also affects your credit score.
- You should not close your credit card account unless there is a compelling reason to close it, closing the card reduces the credit limit which affects the credit score.