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.
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.
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.