Are you considering buying a new vehicle, but are wondering what credit score is needed to buy a car? Are you worried your average 650 credit score is going to hurt you? You’ve come to the right place! Allow me to break it down for you, and be the one to tell you that you can still use a 650 credit score to buy a car! In reality, securing a car loan is one of the easier loans to get despite a lower credit score. For example, there are companies like LendingTree.com! that are known to accept customers with less than perfect credit. The main thing to keep in mind when shopping around is a lower interest rate. Often, the interest rates on a car loan for a person with a credit score of 650 or lower may be as high as 10%, and they still may require a large down payment.
As you explore what credit score is needed to buy a car, calculate auto loan rates by credit score, and begin searching for that new vehicle with your 650 credit score auto loan (or whatever score you have), here are some financial considerations.
Beat the Average Auto Loan Rate – Shop Around!
Most of the time when you are looking for a car you spend time test driving the models you are interested in. If you have a credit score of 650 and want an auto loan, it would be wise to ‘test drive’ those interest rates in addition to the car. If you don’t, the credit score for car loan game may stick you with larger monthly payments than you can afford. Some car dealers have their own financing which means they can be more competitive with the interest rates they offer. Check with multiple dealers and multiple banks rather than just accepting the first offer you receive.
Keep in mind that the kind of car you are purchasing can also affect the interest rate on your loan. Many banks will offer a lower interest rate when you buy a car that is fuel efficient, or hybrid, as opposed to others that will charge more for sports cars. Typically new cars will get you a lower interest rate, whereas used are a bit higher. It is OK to ask the financing institution what credit score is needed to buy a car, and ask to see a breakdown of their auto loan rates by credit score. This can vary from bank to bank, so it’s important to stay informed. Keep in mind, however, how much a monthly payment you can afford. Don’t get in over your head just because you qualify for a good interest rate!
What is a good credit score to buy a car?
Deciphering the credit score for car loan can be tricky. Beyond credit scores, there are questions like, what is a good interest rate for an auto loan? According to bankrate.com the average auto loan rate on a new car for a 5year loan was 4.15%. On a four-year loan for a used car the average was 4.77%. It is possible to find interest rates as low as 0% to 1.99%. However, these loans are often reserved for particular new models of cars and require credit scores above 700. With a credit score of 650 and auto loan interest rate below 5% would be great. Chances are, though, according to USA Today you will be shopping in the range of 6%-9%. When it comes to interest rates it is important to shop around!
Average Car Down Payment
It’s always tough to part with your cash on hand, but it will benefit you in the long run if you can put more money down on your car when applying for a 650 credit score auto loan. The more money you put down up front, the less you have to borrow, the less your monthly payments will be. So parting with your cash now, can give you more cash in your pocket monthly. Determine how much you can afford to put down, and secure a good interest rate as you determine your budget for a car.
Auto Loan Rates by Credit Score
Ok, so by now you probably know your credit score, and you’ve shopped around for the best interest rate you can find, right? You know how much you can afford for your car down payment. Now it’s time to figure out how much you can spend on the monthly payment. If you are semi-challenged in math, as I am, this step may be overwhelming at first. But, the good news is there are online tools that make this easy! All you need to do is enter in the amount of money that you will be borrowing (less your down payment) enter in the interest rate, duration of the loan, and it will calculate how much your monthly payments will be. This is a great tool for determining how much you can afford to borrow at the interest rate you secured for the 650 credit score auto loan. Keep in mind that auto loan rates vary by credit score, so if the payment is a little out of reach, you can work to improve your score and your other monthly expenses. Do a monthly budget worksheet to figure out how a monthly car payment will fit into your budget. Also, don’t forget to include other debt you are trying to pay down quickly, on your monthly budget worksheet. Here is one example of an auto loan calculator that you can use when determining how much to borrow: Auto Loan Calculator
Don’t max out your budget
Let’s say you can afford a car payment of $300 a month. You’ve done a budget worksheet and numbers come out perfectly. Does this mean that it would be wise for you to go out and buy the nicest car you can possibly afford? As tempting as that may be to do, it may not be the wisest thing to do if you are trying to raise your credit score higher than a 650. Money gets tight, emergencies come up, and it is always best to leave some wiggle room in your budget so that you are not continually feeling the pinch of financial burdens. To give yourself peace of mind, a higher chance of securing a 650 credit score auto loan, and to enable you to better make payments on time, it is best to buy in a range that does not max out your budget.
Continuing to Raise Your Score After Buying a Car with a 650 Credit Score Auto Loan
The ultimate goal is to continue to improve your credit score of 650. How can you do this after securing an auto loan? The most important thing is to make your payments on time, always! This is why it may be best not to max out your budget when getting a 650 credit score auto loan. In addition, continue to pay down smaller debt as quickly as possible, while still making minimum payments on time in all other areas. If you follow these tips, you’ll never have to wonder what credit score is needed to buy a car again, as you’ll be confident your good credit score will secure a great auto loan rate!
So, when you are calculating credit score for car loan rates, or looking to purchase a car with a 650 credit score auto loan here are the things you need to remember:
- Shop around for interest rates!
- The more money you can pay up front the better!
- Determine a comfortable budget!
- Don’t max out your budget!
- Continue to work on raising your credit score after buying a car by paying down other debt and making payments on time!