Getting an auto loan is not as difficult as getting a home loan, but it can be quite expensive. With bad credit, you can pay up to five times the interest rate of a buyer with excellent credit. Each lender describes their credit score differently, getting multiple referrals for your auto loan can help you make the best deal regardless of your credit score. Here is the average credit score for auto loans.
FICO Score Impact:
The key factor determining your auto loan interest rate is your FICO credit score. Auto lenders offer based on the level of your credit score. Every lender’s system is different, but there are always at least three credit tiers based on whether an applicant’s credit history is excellent, good, or bad. The level at which you are can make a big difference in your payments.
While each lender has different standards, a credit score of 740 will get you better deals. This score usually indicates a good reputation for at least five years, excellent payments on previous auto loans, and a low balance on credit card accounts. If you are in this range, you get the best rates and promotional dealer funding when they offer it. A score of 700 to 739 also puts you in excellent shape when applying for a car loan. You’ll get higher rates, but there may not be zero percent funding or other special offers.
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The average credit score will range from 660 to 699, according to Cars Direct. With this credit score, you should have no problem getting an auto loan. However, you will pay more to borrow money. According to Cars Direct, you can get a loan around the prime rate. The rate is one percent or more, which will be paid to the person with more credibility.
Because lenders calculate their ratings in a variety of ways, when your credit score averages between 660 and 699, it’s best to shop around. If you are close to 660, some lenders may put you in a position with a bad credit score, which will significantly increase your interest rate. For example, according to MyFICO.com, this slight difference in rating can change your interest rate from 6.6% to 9.71%. Multiple quotes help you get the best rates.
FICO Auto Industry Option:
In addition to your standard credit score, there is a special “FICO Auto Industry Option” credit score that some lenders and dealers use. It focuses on the history of your previous auto loan rather than any other type of credit. If your credit score is not very good but you have always repaid your previous auto loans on time, your average score will still bring you lower interest rates.
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Can I get a car loan with a credit score of 600?
While having a credit score of 600 won’t keep you from getting an auto loan, it might cost you a lot to get that loan. The lower your credit score, the higher the risk is for lenders. So while you might get the loan with a 600 credit score you might be paying a very high-interest rate and a higher monthly payment to get that loan.
It might be best to increase your credit score before you apply for an auto loan.
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