You probably check your credit score once or twice a year. A number you don’t really understand pops up, and then you go on with your life. But when you decide to go car shopping, that number can be the difference between a sports car and a station wagon. Find out the answers to the credit questions we hear most below.
How good should my credit be before I buy a car?
If you’re shopping for a new car, the average credit score for borrowers is around 715. But if you’re in the market for a used car, that average goes down to roughly 680. Car buyers with average credit scores are likely to get a car loan with a fair interest rate.
If you can afford to wait, you shouldn’t buy a car until your score is at the average or better. When your scores are lower, your rates are worse. However, if you absolutely need a car, you can qualify with scores lower than the average. At the end of the day, you have to decide whether you’d rather save money on your next car or get the keys a few months earlier.
Just remember that waiting will almost always be in your favor. Even if your credit is average, pulling your report prior to loan shopping to address any issues you see could save you thousands of dollars.
Can I get a car loan if my credit score is low?
If you need a car, you can almost always find someone willing to lend to you. You may not get the best rate, but that’s not what matters when you need a way to get to work or school. Sadly, there’s not a straightforward answer to just how low your score can be. It depends entirely on the lender you’re talking to. People with low credit scores will have to shop around.
What makes getting an auto loan even trickier for people with poor credit is that the minimum credit score can change in the blink of an eye. Depending on your lender, the minimum could be as low as 500 or as high as 650.
If you have a low credit score and you’re struggling to get a car loan, a great option could be considering less expensive, used cars. Lenders tend to be more willing to work with someone with poor credit if they aren’t making a large investment.
How does my credit score affect my interest rate?
The way your credit score affects your interest rates is pretty straightforward. If you have a higher score, you’ll get a lower interest rate because lenders know that they can trust you. But people with low scores can pay up to seven times more than people with great scores.
| Score | Range | APR |
|---|---|---|
| Best | 745+ | 3.49% |
| Better | 701 – 744 | 7.5% |
| Good | 650 – 700+ | 11.5% |
| Poor | 550 – 649 | 18% |
| Bad | Under 550 | 23% |
How does my credit score affect my monthly payment?
The biggest impact on your monthly car payment is your interest rate. Everyone essentially starts with the same monthly payment. In other words, a car that costs $20,000 will cost $20,000 no matter what your credit score is. But the amount of interest you owe varies. A low credit score could almost double your monthly payment.
| Score | Payment | DTI |
|---|---|---|
| Best | $397 | 12% |
| Better | $437 | 13% |
| Good | $485 | 15% |
| Poor | $545 | 16% |
| Bad | $627 | 19% |
Can I get zero-percent interest on my car loan?
Zero-percent interest loans can be hard to find, but they definitely exist. They’re usually reserved “for qualified buyers”, or in other words, people with excellent credit. While the cut off will vary from dealer to dealer, anyone with a score higher than 750 has a shot at their car dealer paying their interest. Even if your score is a bit lower, you could still qualify. Dealers usually look for:
- A strong history of paying your auto loans on time and in full
- A large downpayment on the car
- Loyalty to both a brand and dealer
- A small financing package
Can I get a car without a downpayment?
The answer is yes, but it’s probably not a good idea to skip the downpayment. Even if you have the best credit, a downpayment will lower your monthly car payment. In the long run, it will save you a lot of money on interest. And if you have poor credit, waiving your downpayment could even cause your interest rates to rise.
But if you’re set on getting a car without a downpayment, it’s possible. More often than not, buyers with credit scores above 680 can waive their downpayment. It may be harder, but people with scores as low as 550 can get it waived as well.
Can I get a car without a cosigner?
Whether or not you need a cosigner to get a car loan depends entirely on your credit history. If you don’t have much of a history, you can participate in a first-time buyer program that will essentially give you the same rates as someone with poor credit.
But if you have a long credit history and a poor credit score, you’ll need a cosigner if you’re denied a loan on your own. And even if you’re given a loan, it could be a good idea to find a cosigner to make your monthly payments lower.
How good should be credit score be before I lease a car?
If you’re looking to lease a car, the average credit score is roughly 620. Compared to purchasing a new or used car, this average is quite low. That’s why leasing a vehicle can be a good stepping stone to purchasing one. While your credit is lower, you can work up to a higher score before car shopping.
However, don’t lease a car just because your score is high enough. If you can wait a few more months to go about leasing a car, you’ll get even better interest rates and save in the long run. This is especially true for people on the lower end of the spectrum (scores between 580 and 620), because lenders will often charge extremely high interest rates if your credit is below average.
But if you absolutely need to lease a car, you can generally get one with a score as low as 580 to 600. Your interest rates won’t be favorable, and you may even be forced to make weekly payments rather than monthly ones. But it’s an ideal solution if you don’t qualify to actually purchase a car.
Can I lease a car without a credit history?
Whether you have a small credit history or no history at all, you can usually lease a car. Most often, you’ll be expected to make a larger down payment or trade in another vehicle because you lack the credit history to prove you’re a trustworthy borrower. You’ll also end up with interest rates comparable to those of someone with a poor credit score. However, the dealership may consider your employment and rent/utility bill history in place of a credit score. As always, if you can wait to lease a car, give yourself time to establish credit so you can secure a better interest rate.
Can I lease a car if my credit is bad?
You can buy a car if your credit is bad, and you can lease one too. You’ll be charged a higher interest rate if your credit score is below average, but you likely won’t be denied the lease unless your score drops below the minimum of 580 to 600. Depending on your score, getting a cosigner can be a great way to secure better interest rates on your lease. Regardless of how you approach leasing a car, individuals with poor credit will be expected to make a large downpayment to decrease their monthly payments.
Does it matter if I get a new car or used car?
When most people are debating between a new and used car, they’re considering its year, make, and model. But they should be thinking about their credit scores instead. Whether your score is good or bad can have a major impact on the car’s financing.
If you don’t qualify to finance a new car, a used car is a great option to build you credit while meeting your transportation needs. But at the same time, used cars come with higher interest rates, even when your credit is good. So someone with good credit may be better off buying a more expensive, new car that has a lower interest rate.
Should I buy from a dealer or private owner?
When you buy a used or new car from a dealership, you have the opportunity to finance your car. The worse your credit is, the worse your interest rate will be. And depending on your credit score, you may not even qualify to purchase a car in the first place. But when you purchase through a private owner, you don’t have as many formal financing options. The limits are often much less strict, and people with poorer credit can afford a car via a personal loan, for example.
What should I do before I buy or lease a car?
If at all possible, you should pull your credit report three to six months prior to buying or leasing a car. Your credit score will have a major impact on the amount you spend, and there may be glaring issues on your credit report that you can address before you go shopping for an auto loan. Even boosting your score ten points over the course of several months can make a world of difference when you’re negotiating an interest rate.
