- A good credit score to buy a car is often above 660, as you're then considered a "prime" borrower.
- There's no industry-wide, official minimum credit score in order to qualify for an auto loan.
- Generally, the higher your credit score, the better terms you're likely to get on the loan.
Americans are borrowing more money than ever to buy cars.
The average loan amount, not including interest, was $40,184 for a new car and just under $28,000 for a used car in the fourth quarter of 2023, according to credit-reporting agency Experian. In total, Americans owe over $1.62 trillion on their auto loans, according to the Federal Reserve Bank of New York.
The importance of credit scores in auto financing
These numbers may be less shocking when you consider the barrier to entry isn't incredibly high. While a good FICO credit score to buy a car with a loan is usually above 660, according to Experian data, there's no industry-wide, official minimum. Over 30% of the $1.4 trillion in auto debt is held by borrowers with credit scores below 660.
As with most other types of loans, the higher the borrower's credit score, the easier it is to get a loan. You'll also secure better loan terms. But it's still possible to get an auto loan with a traditionally low credit score.
Credit score ranges and what they mean
Credit scores range from 300 to 850, with higher numbers indicating a stronger borrowing history.
According to Experian's analysis of auto loans in the fourth quarter of 2023, borrowers who received financing for a new car had an average credit score of 734, while borrowers who received financing for a used car had an average credit score of 708.
In its analysis of auto loans, Experian separates current auto loan borrowers into five categories based on credit scores:
| Category | Score |
| Super prime | 781-850 |
| Prime | 661-780 |
| Nonprime (near prime) | 601-660 |
| Subprime | 501-600 |
| Deep subprime | 300-500 |
Borrowers in the subprime and deep subprime categories represent 15.6% of all borrowers in the auto-loan market, according to Experian. Meanwhile, borrowers in the top two categories, super prime and prime, represent 66.5% of all borrowers.
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Credit score requirements for buying a car
How credit scores affect loan conditions
Generally, the higher the credit score, the lower the interest rate. According to Experian's fourth-quarter data, the average interest rates on new and used car loans for each category of borrower were as follows:
| Category | New car auto rates | Used auto loan rates |
| Super prime (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% |
Some auto lenders may also require a cosigner for those with lower credit scores. A cosigner is somebody with established credit who legally agrees to take responsibility for paying back the loan if the primary borrower fails to do so.
What other credit scoring models do lenders use?
When deciding whether to extend a loan, auto lenders may use a specific FICO credit-scoring model called the FICO Auto Score. The FICO Auto Score is a variation on the general scoring model, designed specifically to predict the risk of a borrower defaulting on car payments. It ranges from 250 to 900, according to Experian.
While FICO remains the most widely used credit score across all types of borrowing, an auto lender may also look at your credit score from VantageScore, a relatively new credit scoring system developed by the three credit bureaus — Equifax, TransUnion, and Experian.
Many auto lenders will consider more than a credit score, though. A borrower's debt-to-income ratio, complete credit history, and down payment amount will also affect the loan terms.
And before you ask, yes, it is possible (in some cases) to buy a car with a credit card. However, it's not worth maxing out your credit to do it — and especially not if you can't pay off the card in full.
How to improve your credit score for better loan terms
Tips for boosting your credit score before applying
The No. 1 factor lenders look at when considering extending credit is payment history. Potential lenders want to see that you can pay your bills on time and handle credit responsibly. Ensure that:
- All of your bills are paid on time
- There aren't any delinquencies
- Your credit utilization is low
Also, do not open new credit accounts close to the time you will be applying to finance a car, because your credit score will temporarily drop after a hard inquiry.
Navigating car loans with different credit scores
The importance of shopping around for the best rates
Regardless of your credit score, it is always worth it to shop around for the best rates. If you have less than perfect credit, it is even more important to compare your options to get the best price and interest rate possible.
If you are already a credit union customer, you may want to explore your options there. A credit union with which you have a relationship may offer better rates, even if you have a lower credit score. Business Insider reviews and rates the best credit unions.
The role of down payments in buying a car
How down payments affect loan terms and interest rates
Making a down payment reduces the amount you'll need to finance and can help you pay the loan off sooner. According to the Edmunds auto loan calculator, every $1,000 added to your down payment reduces your monthly payment by $15 to $18. You can use an auto loan calculator to see how various down payment amounts will affect your monthly payments. If you have fair credit, a down payment can make a potential lender feel more comfortable financing your car purchase or offer you a better interest rate.
Frequently asked questions about credit scores and auto loans
The minimum credit score often required for traditional financing a car loan is in the 600-660 range, although higher credit scores will result in better financing terms.
You can get a car loan with a credit score below 600, but you will pay higher interest rates and most likely be expected to make a larger down payment. You may also end up financing with a subprime lender.
If you have good credit, it is better to finance a car through a bank that may offer you a better interest rate. If you have fair credit, a dealership may be able to offer you financing through its partners.
To quickly improve your credit score to buy a car, pay down debt. If you have credit cards, lower your credit utilization and make sure you have a positive payment history by paying all bills on time. Don't apply for any new credit while trying to finance a car.
You get the best interest rates for an auto loan by having a good credit score. You can employ a credit monitoring service to monitor your score; some of the best credit monitoring services are even free. When you apply for an auto loan, be sure to shop around for the best rates. All the hard inquiries you accumulate as you shop will be counted as one by the credit scoring algorithms.
