Brainy Loans
Minimum credit score for auto loan eligibility?
Auto loan lenders don’t require a specific credit score for individuals to qualify for a car loan. Many lenders will approve all sorts of credit scores, but having a higher credit score does increase your chances of approval and getting more favorable rates.
Understanding how your credit score might influence your approval chances and affect your rates is important. Here, we will describe what credit score is typically required to qualify for an auto loan.
What is a credit score and how it's used?
Each lender has its own way of qualifying individuals; however, auto lenders usually use the FICO credit score when assessing auto loan applications.
Your FICO score is calculated by credit bureaus such as TransUnion, Equifax, and Experian, and is determined by factors such as payment history, length of credit history, types of credit accounts, and your debt-to-credit ratio.
These factors are evaluated and displayed as a credit scores ranging from 300 to 850, with higher scores increasing your chances of approval. When you apply for an auto loan, the lender will usually check your credit report to assess your credit history and determine your creditworthiness.
Lenders will take a quick look at your full report to see if you have been making timely payments on all of your accounts. Auto loan lenders will use a combination of their own criteria and your FICO score to determine your approval.
It’s important to understand that many lenders use different kinds of personal information to determine your qualification for a loan.
However, the higher your credit score, the better rates you are likely to receive, which can help you save money on your loan.
Can I get an auto loan with any credit score, or is there a particular score I need to have?
The beauty of the lending industry is that there is no set minimum credit score required for an individual to get approved for an auto loan. When lenders approve an individual, they consider not only their credit score, but also other personal factors such as income and job history.
That being said, credit score still plays a big role in determining your approval and the terms you will receive.
Your credit score may play a different role depending on the lender you choose. Since vehicles are an expensive purchase, it is recommended to have a higher credit score, as this will increase your chances of getting approved for a better loan and potentially save you thousands on your purchase.
With a higher credit score, you can receive an overall better loan option, a lower interest rate, more negotiating power, and quicker loan approval. Additionally, it’s important to note that the Annual Percentage Rate (APR) will affect the overall cost of the loan.
Low APR | High APR |
Loan: $20,000Term: 60 months (5 years)APR: 3%Monthly payment: $359.37Total interest paid: $1,562.23 | Loan: $20,000Term: 60 months (5 years)APR: 12%Monthly payment: $444.89Total interest paid: $6,687.45 |
Applying for a Car Loan: A How-To Guide
Determine your budget: Use a free online calculator to determine how much you are able to afford which will give you a greater on the vehicle you should buy. Also, make sure the payment you select will not be a stress for your monthly income.
Determine your credit score: Find out what your credit score is to give you an idea of what your interest rate would be helping you determine if you should wait to build it up to get a better rate or if you are already applying.
Shop for Lender: When selecting a lender be sure to compare between personal loans, auto loans, banks, and credit unions determining which lender might give you the best rate. Also, most dealerships are able to help you submit your application to multiple lenders selecting the best lender for you.
Shop Around for Vehicles: Before choosing a particular vehicle be sure to compare it to other cars on the market, as well as test drive multiple cars. Once you have selected the vehicle check the reviews of the dealership confirming they are a reputable establishment.
Consider the full cost: When buying a vehicle the listed price might not always be the full cost of the purchase. There are other fees associated with a car purchase such as dealer fees, registration costs, warranty, gap, and other products you might add to the car. Once you determined the full cost of the car be sure to negotiate the price making sure your getting the best deal for your purchase.
Get Approved: Once you have selected the vehicle be sure to get approved by the lender to finilize all your numbers and get your monthly payment. Once you have received that make a plan to repay the loan in a timely manor and take possession of the car.
Disclaimer: We make every effort to ensure the accuracy and currency of our information. However, the information presented may differ from what you find when you visit a financial institution, service provider, or product site. We do not provide warranties for any financial products, shopping products, or services. When reviewing offers, please carefully read the terms and conditions of the financial institution. Pre-qualified offers are not binding. If you notice any discrepancies in your credit score or report, please contact TransUnion® directly. Our partners compensate us for featuring their products on our site, and this may affect the products we write about and their placement on the page. However, this does not influence our evaluations, and our opinions remain independent.
