Loans > What Credit Score is Needed to Buy a Car?

What Credit Score is Needed to Buy a Car?

If you have a bad credit score and want to buy a car, don’t get discouraged. Car buying is still in the cards.

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There’s nothing quite like the freedom of exploring the open road. But to begin your individual explorations, you will need your own car. 🚗

Adventures aside, having the freedom to come and go as you please is important for many reasons—the major car-dependency factor of a country like the United States is just one. In the US, for example, more than 70% of people own a car. In much of the rural parts, having a car is a must.

But buying a new set of wheels is a significant financial decision. And it’s possible there may be certain financial roadblocks, such as your credit score, to get in the way during the buying process. But if you run into one of these roadblocks, don’t allow yourself to get too worked up—as there are some detours. 🚧

If you want to take these backroads and end up with a set of new wheels, now is the time to buy as prices of new cars are on an upward trend in the wake of COVID-19. If you are feeling lost or credit inadequate, here’s what you need to know to get a car loan today.

What you’ll learn
  • What Do I Need for a Car Loan?
  • Documentation Checklist
  • Car Loan APRs by Credit Score
  • Getting an Auto Loan with Bad Credit
  • Getting an Auto Loan with No Credit
  • What's a 'Good Credit Score'?
  • Auto Insurance Scores
  • Tips to Improve Your Scores

What Do You Need to Get a Car Loan? 🗂

As with any time you borrow money, your credit score plays a large factor in your ability to qualify for a car loan. However, with car loans specifically, your credit score actually isn’t the end-all-be-all. 

Car sales is a cut-throat business and at the end of the day, the people who work in the business want to sell cars, no matter the costs. So, it should come as no shock that you have extensive options when it comes to getting a car loan, no matter what your credit score is. 

Each lender has its own requirements that depend on a variety of factors not specifically related to your credit score. Besides your credit score, if you want to buy a car you will need a stable income, all the correct required documentation, and in most cases a down payment. 

Lenders need all of this information to assure themselves that you can repay the loan. If you can’t make good on your debt there can be major consequences, including repossession. And today, dealers and lenders exercise extreme caution because the number of consumer auto loan delinquencies is growing as a result of the pandemic.

Documents Needed to Buy a Car 📄

Credit-worthiness aside, the whole process of obtaining a car loan will be far less complicated if you have everything you need on hand. Different situations can yield different requirements but here are general documents you need to have:

Proof of Identity 💳

For obvious reasons, lenders need this to verify that you are who you say you are. Typically requested is a government-issued photo ID. This can be a state-issued driver’s license or any other government-issued ID such as a US passport or Visa.

Proof of Income 💲

Lenders want to know you’ll be able to repay the loan and seeing proof of a stable income stream is how they can do that. If you are a W-2 employee, a recent pay statement, bank statement, or W-2 will work. If you are self-employed, be prepared to have 2 years of previous tax returns or 1099 forms on demand.

Proof of Address 📫

Federal law requires creditors to obtain proof of your address. Typically a piece of personal mail such as a recent utility bill, mortgage statement, or lease agreement suffices.

Additionally, some lenders may accept your photo ID, pay statement, or a bank statement as sufficient proof. Be prepared to also give the lender other information about your residence, including your monthly mortgage/rental payment and how long you’ve lived there.

Credit/Banking History 📈

The lender will most definitely initiate a hard pull to your credit to verify creditworthiness. Though less common, you may need to provide bank history or statements if asked.

Vehicle Information 🚗

You need to have the information for both the vehicle you want to buy and for the one you want to trade-in if applicable. When it comes to the vehicle you are buying, the dealer or individual you are purchasing from will more than likely have it covered. For the vehicle you want to trade-in, make sure you have the appropriate title work and papers.

Proof of Insurance 📑

You will need proof of your current auto insurance policy. In general, the lender will want you to have an effective date on your policy for the new vehicle before the closing of the loan. Either way, you’ll need to take out a full coverage policy. Any piece of property you have debt on will require this safety net in case of a sudden and total loss.

Method of Down Payment 💵

In most cases, the dealer or lender will want you to put some money down on your vehicle. Usually, cash or a check will suffice but the dealer or lender may also accept ACH or wire transfers from your bank. Either way, prepare to cough up the cash.

Car Loan APRs by Credit Score 📉

If you’re looking for the quick and easy answer, 660 is usually the minimum credit score needed to buy car. But, as with most things in life, there’s a lot more to it than that.

Fun fact: Even those with the worst of credit can still qualify for an auto loan. Because of the nationwide dependency on cars, auto loans are in general easier to obtain than other types of consumer loans. 

This is great news for our bad credit folks. If you are one of those consumers with a subprime credit score, you most likely can still get a car loan. That is of course providing you meet the other requirements such as adequate income and documentation.

However, there is a stipulation…be prepared to accept a steeper interest rate than your prime credit friend. The general rule of thumb for most loans is this: the worse your credit is, the higher your interest rate will be.

Lenders like to make more money off of the poor-credit individuals. It’s their way of justifying the risks associated with lending money to someone with a bad credit track record. This is no different from car loans as your credit score determines your interest rate.

But, no matter where your credit fits on the scale, know that if you want a good interest rate now just may be the prime time to buy. Due to the economic impact from the COVID-19 pandemic, Interest rates have been at a new low—and this downward trend of rates is expected to continue into 2021.

Here are the 2020 average Annual Percentage Rates (APR) for car loans by credit score according to Experian Q2 Market Data:

Credit scoreAverage APR for a new carAverage APR for a used car
Super Prime: 781-8503.24%4.08%
Prime: 661-7804.21%6.05%
Non Prime: 601-6607.14%11.41%
Subprime: 501-60011.33%17.78%
Deep Subprime: 300-50013.97%20.67%

How to Get a Car Loan With Bad Credit ❌

Having bad credit can be very discouraging when shopping for cars—but it doesn’t need to be. If you have subprime credit, you almost always have some type of option when it comes to car buying. 

Credit requirements vary from lender to lender meaning there are plenty of options out there for you. But, here are some important things to keep in mind when it comes to getting a car loan with bad credit:

Know What is Affordable For You 💰 

It’s important to walk into the dealer having a solid idea of what type of payment fits within your budget. For an expensive, out-of-budget car, your chances of approval will be lower and you risk becoming stressed with a too-high payment.

The first step in your car buying adventure needs to be to research prior to physically looking at any car. This also helps you figure out your budget and grasp what’s affordable. Research things like interest rates and loan terms for your credit tier and see how it may impact your monthly payment.

Shop Around 🛒

With car loans, you have a multitude of options. And you most definitely should weigh your options before meeting with a dealer. After looking at various interest rates and loan terms, look into prequalifying with specific lenders. 

We especially recommend the ones that offer bad credit installment loans. These lenders have loans designed for the credit-challenged folks so they will offer you your greatest shot of approval.

Make a Good Down Payment ➕

They say cash is king. The more you can put down on your car, the less you’ll have to finance equating to a lower monthly payment. Additionally, putting more money down can reduce your interest rate or the term (months) of the loan. 

It also increases your approval odds as lenders view the transaction with less risk. Most lenders will want at least 10% of the car value in a down payment, but if you can do 25% you are at a clear advantage.

Think About Drafting a Cosigner ✍️

If all else fails, consider asking a close family member or friend to cosign the car loan with you. Having a cosigner plays to your advantage because lenders factor their creditworthiness and income levels into the approval decision. Cosigners assume legal borrowing responsibilities and are an equal owner of the loan account. 

It’s important to know going into it that enlisting a cosigner is a big favor to ask. There can be potentially credit-damaging consequences for your cosigner if you miss a payment. All the more reason to motivate you to do better, right? 🤷

How to Get Car Loans with No Credit

Some people say that having no credit is worse than having bad credit. But, just like with having bad credit, having no credit isn’t the auto loan death sentence. 

It’s entirely possible to buy a car with no pre-established credit. But we aren’t going to lie, the process will be more of a challenge. In general, lenders prefer borrowers who have an established borrowing history and proof of making regular payments. After all, how can they gauge your ability to pay them back with no history of credit? 

All negativity aside, you can still get a car loan with no credit. You can follow many of the same steps for getting a loan with bad credit: set a budget, shop around, have a larger down payment, and consider a cosigner. However, here are some other ideas for how to get a car loan with no credit:

Check Out Lenders Who Specialize in Bad Credit Loans

Adding on to loan shopping, it may be really worth it to check out lenders who specialize in loans for bad credit. In general, these lenders will need proof of a steady source of income to prove that you can make on-time payments. Some of these lenders may require you to buy from a dealership within their network though, so know that going into it.

Consider Calling a Credit Union

Credit unions are reputable for their leniency with financially-troubled consumers. It wouldn’t be a bad idea to check with a local credit union to see what your options are. Also, note that most of the time they’ll want you to be a member so you may have to move your banking relationship if need be.

Check Out Special Situational Offers

There’s a chance you don’t have credit because of your unique situation. Are you a student or recent graduate? How about active duty military or recently ended your contract with the military? Some automakers and lenders have programs designed for people with special situations such as these.

What is Considered a Good Credit Score? ✔️

We’ve driven this point home: your credit score is majorly influential in the world of borrowing money. And we’ve explored the avenues of having bad credit in connection with a car loan. But what exactly is considered a good credit rating?

In the car-buying world, anything above a 660 credit score will yield you a decent rate. And a lot of consumers can take advantage of these rates considering the average credit score has recently hit a record high of 710 this past year. 

By the FICO® standard, a good credit score is anything greater than a 670.

Auto Insurance Scores 💯

In addition to your ability to get a half-decent interest rate, your credit score also can affect your auto insurance premiums. This calculation is known as your Auto Insurance Score or your AIS, which assesses your risk as a driver. Insurance companies calculate your AIS to help them determine the likelihood of you filing a pricey claim on the back end.

Many things go into the calculation of your AIS. Included are things like your driving record, your location, the type of vehicle, demographics, and history of previous claims. But, none of these items have the heaviest weight for determining the cost of your insurability. Recent studies actually point to your credit score being a major determinant of your AIS.

Because auto insurers worry about the financial liability associated with insuring you, your credit is a deciding factor for setting your insurance premiums. The practice of matching up your credit history with driving risk is calculating your AIS.

How Bad Credit Affects Your Insurance Premiums 👎

Ever noticed that young adults especially have high insurance premiums? Sure, this may have to do with demographics and statistics but it also corresponds to credit. The younger you are, the more likely you are to have a less established credit history…and a less established driving record.

Your AIS determines your premiums, or how much you have to pay to carry a policy. The intention is to help reduce the risk associated with insuring you if you end up needing to file a claim. 

The real kicker? The fact that the AIS heavily correlates with your credit score, a bad credit score could mean you end up paying more for insurance.

It’s important to know that not every single insurance company out there uses the AIS practice as part of their standard procedures. However, many of the major insurers still do. So, if you want the lowest possible insurance rate for the best coverage, consider improving your credit.

Bad credit aside, if you are above 25 and have a clean driving record you still may find yourself scoring a decent auto insurance rate. This is especially true today as auto insurance rates, like a lot of things, correspond with the economy and current interest rates. 

Just like interest rates, insurance rates are at a new low in today’s time— and these rates are also expected to continue decreasing in 2021

How to Improve Your Credit Score and Auto Insurance Score 📈

Having a good credit score allows you to reap many benefits in the auto world. From qualifying for loans with decent interest rates to paying less for car insurance, you truly can’t go wrong with a prime credit score. But, don’t get discouraged if your credit score is currently subprime.

You can always use techniques to boost your credit rating and with time can come out on top of the credit score game.

Here are just a few tips to improve both your credit and auto insurance score:

  • Constantly read your credit report for errors. Right now, you can get a free copy of your credit report every single week. 🔍
  • Make on-time payments. The more on-time payments you make, the more your percentage of on-time payment history increases. 📅
  • Keep a low debt utilization ratio by keeping your balances owed to a minimum. Credit utilization accounts for 30% of your score so it’s important to keep those balances under control. 👌
  • Attempt to get any negative remarks removed from your credit report. 🙅‍♂️
  • If you’re overwhelmed by the process of repairing credit by yourself, consider hiring a professional credit repair agency to help reduce the load. 🧑‍💼
Understanding the impact of the five major FICO credit score factors will get you on track.

Naturally, improving your credit score will allow you to score better interest rates, saving you money over the life of your car loan. Improving your credit will also improve your AIS, lowering your auto insurance premiums. So, improving your credit is honestly a Win-Win. 🙌


  • Does A Car Loan Build Credit?

    Having any type of installment loan, like a car loan, can help build your credit. The establishment of a steady payment history will do wonders for your credit score over time.

  • What Is A Good APR For A Car Loan?

    Right now, with how low interest rates are, many APRs on car loans are good. But, the lower you can get the better. We say anything between 3 and 5% is considered a good APR.

  • How Many Points Does Your Credit Score Go Up When You Pay Off A Car Loan?

    Paying off your car loan can have both negative and positive effects on your credit score, depending on your overall credit profile. The negative effects are typically only temporary and occur due to the closure of an account. This lowers your number of accounts and credit account variety and can hurt you.

    However, paying off a car loan lowers your overall debt and can have positive effects on your score on that front. 

All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team. Neither our writers nor our editors receive direct compensation of any kind to publish information on Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Click here for a full list of our partners and an in-depth explanation on how we get paid.