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A good credit score for buying a car is usually greater than 660, which is considered "paramount" by Experian.Kevork Djansezian / Getty Images
- A good credit score for buying a car is usually greater than 660, which is the minimum score to be considered a "preferred" borrower by Experian.
- However, there is no formal, industry-wide minimum credit score to qualify for a car loan.
- Generally, the higher your credit score, the better your loan terms.
- According to an Experian badysis of auto loans in the first quarter of 2019, Borrowers who received financing for a new car had an average credit score of 716, while borrowers who had received funding for a used car had an average score of 657.
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Americans are borrowing more than ever to buy cars.
The average loan amount, excluding interest, exceeded $ 32,000 for a new car and $ 20,000 for a used car in the first quarter of 2019, according to the Experian Credit Assessment Agency. . In total, Americans owe more than $ 1.18 trillion on their auto loans.
These numbers may be less shocking if you consider that the barrier to entry is not incredibly high. While a good credit score for buying a car with a loan is usually greater than 660, according to Experian data, there is no official minimum for the entire sector.
As with most other types of loans, the higher the credit score of the borrower, the better the terms of the loan. But, it is still possible to obtain a car loan with a traditionally low credit score.
What's a good credit score for buying a car?
According to Experian's badysis of auto loans in the first quarter of 2019, Borrowers who received financing for a new car had an average credit score of 716, while borrowers who received financing for a used car had an average credit score of 657.
In its car loan badysis, Experian divides current borrowers into five categories based on their creditworthiness:
- Super premium (781-850)
- Prime (661-780)
- Nonprime (601-660)
- Subprime (501-600)
- Deep subprime (300-500)
According to Experian, subprime and deep borrowers account for just under 19% of borrowers in the auto loan market. At the same time, borrowers belonging to the two best performing categories (super premium and premium) account for about 63% of all borrowers.
As a general rule, the higher the credit score, the lower the interest rate. According to Experian data for the first quarter, the average interest rates for a new car loan by category of borrower were as follows:
- Super Prime (781-850) – 4.20%
- Premium (661-780) – 5.12%
- Nonprime (601-660) – 8.08%
- Subprime (501-600) – 12.42%
- Deep subprime (300-500) – 14.97%
Interest rates tend to be even higher for used car loans, reaching 17.52% for at-risk borrowers and 20.24% for large sub-prime borrowers.
Some car lenders may also require a co-signer for those with lower credit ratings. A co-signer is a person with an established credit who legally undertakes to badume responsibility for repaying the loan if the primary borrower does not do so.
Some car lenders may use a specific credit rating model
To decide to grant a loan, car lenders can use a credit rating model specific to Fair Issac Corporation (FICO), called FICO Auto Score. The FICO Auto Score is a variant of the general rating model, designed specifically to predict the risk that a borrower will miss his car payments. It ranges from 250 to 900, according to Experian.
However, many lenders consider more than a credit score. The debt ratio of the borrower, the full credit history and the amount of the down payment will also affect the terms of the loan.
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