There is no exact minimum credit score required to get an auto loan. A lot of the time, a score of 600 is good enough, especially if you are buying a used car. Smaller auto loans are much easier for people with bruised credit to get than larger ones.
Minimum Credit Score to Buy a Car
Again, there is no exact minimum, and a score of 600 is considered fair rather than very poor. You might have to pay more interest than you expected, but many lenders will let you buy a used car with a credit score of 600.
A score of 600 is somewhere in the middle1, not terrible. It tells a lender that you will probably make your payments, but you are riskier than someone with excellent credit. Many car dealers will give you a chance.
Scores from 300 to 579 are very poor and will make it hard to get an auto loan without very high interest. A credit score in that range tells lenders that you are risky to lend to. Anywhere from 580 to 669 is more acceptable and suggests that you will probably make payments but have sometimes been unreliable.
Sometimes, lenders can make money by dealing with people that have poor credit. If a bank lets someone with a bruised credit history but a decent income have a credit card, they might make money if the borrower makes payments on time.
Borrowers with worse credit are more willing to accept higher interest rates, so it is not always a bad choice to lend to someone with relatively bad credit. It also works this way with auto loans. If someone has poor credit but a decent income, they often make payments on time.
The basis for your credit score
The most common type of credit score (there is not only one kind) is the FICO score2. It is one of the best methods of estimating whether a borrower is too risky to lend to.
Your FICO score is based on five different factors of unequal importance. It depends on payment history (35%), the amount owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%).
It doesn’t include everything relevant – your income or length of employment isn’t part of it. These things matter when you are buying a used car, but they don’t affect your credit score. Your credit score is only based on your credit history. The different factors are:
* Payment history: this counts delinquencies, bankruptcies, collections, and most late payments
* Amount owed: this is relative to how much credit you have available, so using only 30% of your credit is much better than maxing out your cards.
* Length of credit history: it is good if you have been making payments on accounts for a long time. Newer accounts don’t boost your credit score as much.
* New credit: while it doesn’t make a huge difference, getting a new credit card can lower your score.
* Credit mix: it is positive to have a few different types of credit, for example, a student loan, a mortgage, and a credit card.
Average Car Loan Interest Rate by Credit Score
While people with fair and often even poor credit scores can get car loans, they will have to accept higher interest rates. For a used car, the average interest rate3 is:
* Credit Score 781-850: 3.61% interest
* Credit Score 661-780: 5.38% interest
* Credit Score 601-660: 9.80% interest
* Credit Score 501-600: 15.96% interest
* Credit Score 300-500: 19.87% interest
While people with poor credit scores and certainly people with fair credit scores can get auto loans, they will have to accept higher interest rates.
Rates are higher for used than for new cars. The average for used cars is 8.21%, compared to only 3.86% for new cars. If your credit score is between 501 and 600, you will pay 15.96%, compared to 9.80% for between 501 and 600.
How to Improve Your 600 Credit Score
The best way to improve a fairly low credit score is to simply get out of debt. Remember that your credit score may get even worse in the future if you don’t do anything to fix it. Paying interest fees every month is a waste of money.
Getting out of debt is difficult, but it can be done. It only takes calm, consistent effort. Sometimes, you have to do something significant like move into a cheaper place or get a higher-paying job to get out of debt. Other times, you only need to change your spending habits.
After you have enough money, it doesn’t take much other than a little consistency to raise your score. Always paying all of your bills on time is a good idea. Don’t get new credit cards or a new line of credit unnecessarily.
Another good idea is to talk to a credit repair agency. Credit repair agencies can take a look at your credit report and look for errors4 (a third of people have errors on their credit reports) and call credit bureaus to correct them. You might also want to get a copy of your credit report and look for mistakes yourself.
You can also raise your credit score by increasing your credit limit. If you ask for higher credit limits (which are sometimes available even with bruised credit), your credit utilization will decrease, and your credit score will rise.
600 Credit Score Car Loan
Having a decent, steady income is the most important thing if you want to get a used car with a credit score of 600. If you can, consider getting a co-signer for your car loan. With a co-signer, even a score well under 600 might not be too low.
A co-signer is a different person who accepts responsibility for paying for your car if you can’t pay. They don’t have to make any payments if you can make your payments on time. However, if you keep missing payments, your co-signer will be responsible.
Not everyone has anyone they could ask to be a co-signer, and the idea of asking someone might make you uncomfortable. However, you might be able to pay this person back with a comparable favor later on. If you are sure you can make payments, consider getting a co-signer for your loan.
Can I Get a Car Loan With 600 Credit Score?
Yes, you can get a car loan with a 600 or even lower credit score. If a company has a minimum credit score cutoff, it is often lower than 600. Sometimes, a company has no minimum cutoff and will consider anyone as long as they have a reasonable income.
Many companies have a minimum cutoff of 6615, but many others are more generous. A score under 661 definitely isn’t too low to buy a used car from the right dealer.
Bad Credit Loan for Car
Another way to get a used car loan even though you have fair to poor credit is to save up for a big down payment. Car deals that are available to people with poor credit often require big down payments.
Bad Credit Car Dealerships
Many car dealerships are more willing to lend to people with lower credit scores than others. Many car dealerships specialize in people with lower credit and will give them reasonably good deals relative to their credit history. Even if you have been bankrupt before or have had a car repossessed before, you can still get a car from the right dealership.
In the Denver metro area, one dealer specializes in poor credit auto loans: Yes, Econo Auto Sales has been helping people buy cars, trucks and SUV’s for over thirty years.
We finance people regardless of their credit score. That means, even if they’ve had a recent bankruptcy, divorce, or even repossession, we can help. Your credit doesn’t have to define you.
Well known as a buy here pay here dealer, Econo has helped people in Denver, Aurora, Lakewood, Golden, Thornton, Littleton, Westminster, Englewood, because we’re centrally located – a couple of miles west of I-25 on Colfax Ave, between Federal and Sheridan.
Whether you have good credit, bad credit, or even if you’ve never had any credit history at all, we can help you get a vehicle.
One reason Econo Auto Sales has succeeded where others have failed is that we’re more flexible than other, similar dealerships. We look at each person’s situation individually, rather than using a blanket, one-size-fits-all approach.
Your employment history also matters. You will seem more reliable if you can demonstrate that you don’t have any trouble staying employed.
Another thing that matters is your debt-to-income ratio. If you make $4000 per month and your fixed expenses (a mortgage, credit card debt, student debt, and anything else you owe) are $2000 per month, you have a debt-to-income ratio of 50%. Use your income before taxes to calculate your debt-to-income ratio.
While 50% is bad, 20% is a good debt-to-income ratio that will help you get a loan. Lenders don’t always use your standard credit score when they consider you for an auto loan. They might use a different scoring system that takes other things into account.
1 – https://www.experian.com/blogs/ask-experian/can-i-get-a-car-loan-with-a-600-credit-score/
2 – https://www.investopedia.com/ask/answers/05/creditscorecalculation.asp
4 – https://www.forbes.com/advisor/credit-score/best-credit-repair-companies/
5 – https://www.investopedia.com/how-to-get-a-car-loan-with-bad-credit-5186761