If you’re planning to buy a car but can’t afford to pay all at once, you’ll probably need to take out an auto loan. Your credit score plays a big role in the interest rate you’ll be offered, and this can have a big effect on how much your car will cost in the long run.
Let’s take a closer look at how credit scores work, what scores lenders look for, and how to get the best possible deal when applying for a car loan.
Understanding Credit Scores
A credit score is a number that tells lenders how reliable you are when it comes to paying back borrowed money. This three-digit score helps them decide how much to lend you and what interest rate to offer. The higher your score, the better your chances of getting a good deal.
Your score is based on the details in your credit report, which includes things like:
- How often you pay your bills on time
- How much debt you currently owe
- How long you’ve had credit
- The types of credit you use
- How many new credit applications you’ve made
- Past financial troubles like bankruptcy or foreclosures
What Is Considered a Good Credit Score?
Different lenders use different scoring models, but most follow a similar range:
- 800 to 850: Excellent
- 740 to 799: Very Good
- 670 to 739: Good
- 580 to 669: Fair
- 300 to 579: Poor
If your score is in the “good” range or higher, you’ll likely qualify for a loan with lower interest rates. Borrowers with “fair” or “poor” credit may find it harder to get approved and will probably pay more in interest.
Credit Score Requirements for a Car Loan
According to a 2024 report by Experian, most car loans go to people with credit scores above 660. If your score is 661 or higher, you’ll have a better chance of getting approved for a loan and receiving better terms.
That said, even if your score is lower, you might still be able to get a loan. Lenders do offer loans to people with bad credit, but you’ll need to search for companies that specialize in that type of lending. It’s also a good idea to apply to several lenders so you can compare interest rates.
How Credit Scores Affect Interest Rates
Your credit score doesn’t just affect your ability to get a loan, it also impacts how much that loan will cost. Here’s how average interest rates vary depending on your score:
| Credit Score | New Car APR | Used Car APR |
| 781-850 | 5.25% | 7.13% |
| 661-780 | 6.87% | 9.36% |
| 601-660 | 9.83% | 13.92% |
| 501-600 | 13.18% | 18.86% |
| 300-500 | 15.77% | 21.55% |
For example, if you get a $30,000 new car loan and have a top-tier credit score, you might pay only $3,159 in interest over four years. But if your score is in the poor range, that same loan could cost over $10,000 in interest.
Why Credit Matters When Buying a Car
Your credit score affects two major parts of car buying:
- Getting Approved: Some lenders won’t work with people who have low credit scores.
- Interest Rate: Even if you get approved, poor credit will often lead to higher monthly payments and total costs.
This is why it’s smart to check your credit score before applying. Improving it even by a little can lead to serious savings.
Can You Still Buy a Car With Bad Credit?
Yes, it’s possible. Some lenders do work with people who have subprime or poor credit. These lenders may charge higher interest rates, so it’s important to compare multiple offers.
If you don’t need a car right away, try to improve your credit score before applying. Making this effort could lower your interest rate, making car financing and insurance much more affordable in the long run.
How to Improve Your Chances of Getting a Good Deal
If your credit score needs work, here are a few things you can do to boost it:
- Pay bills on time
- Reduce your credit card balances
- Avoid applying for too many new loans at once
- Keep your old accounts open to build a longer credit history
Once your score improves, you’ll likely qualify for better loan offers with lower interest.
Don’t Forget About Car Financing and Insurance
When budgeting for a vehicle, many people focus only on the loan itself. But it’s just as important to consider car financing and insurance together. The total cost of owning a car includes monthly loan payments, insurance premiums, and other expenses like maintenance and taxes. Having a good credit score can help lower both loan interest and insurance rates.
Before You Apply for a Loan
Check your credit score using a service like Credit Karma, your bank’s mobile app, or your credit card provider. Many of them offer free access to your credit report.
If your score is in the high 600s or better, you’re in a good place to apply for a car loan. But if your score is lower, don’t rush into a purchase. Give yourself time to improve your credit it could save you thousands of dollars over the life of your loan.
Final Thoughts
A solid credit score can open the door to better loan terms, lower interest, and a smoother car-buying process. Whether you’re buying your first car or trading in for an upgrade, understanding how your credit impacts your financing is key. Take steps to improve your score, compare multiple loan options, and don’t forget to plan for all the extra costs that come with owning a vehicle.