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- A good credit score to buy a car is usually above 660, which is the minimum score to be considered a "prime" borrower by Experian.
- However, there’s no industry-wide, official minimum credit score in order to qualify for an auto loan.
- Generally, the higher your credit score, the better terms you’re likely to get on the loan.
- According to an Experian analysis 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 score of 657.
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Americans are borrowing more money than ever to buy cars.
The average loan amount, not including interest, topped $32,000 for a new car and $20,000 for a used car in the first quarter of 2019, according to credit-reporting agency Experian. In total, Americans owe over $1.18 trillion on their auto loans.
These numbers may be less shocking when you consider the barrier to entry isn’t incredibly high. While a good credit score to buy a car with a loan is usually above 660, according to Experian data, there’s no industry-wide, official minimum.
As with most other types of loans, the higher the borrower’s credit score, the better the loan terms. But, it’s still possible to get an auto loan with a traditionally low credit score.
What is a good credit score to buy a car?
According to Experian’s analysis 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 analysis of auto loans, Experian separates current auto-loan borrowers into five categories based on credit scores:
- Super prime (781-850)
- Prime (661-780)
- Nonprime (601-660)
- Subprime (501-600)
- Deep subprime (300-500)
Borrowers in the subprime and deep subprime categories represent just under 19% of all borrowers in the auto-loan market, according to Experian. Meanwhile, borrowers in the top two categories, super prime and prime, represent about 63% of all borrowers.
Generally, the higher the credit score, the lower the interest rate. According to Experian’s first quarter data, the average interest rates on a new car loan for each category of borrower were as follows:
- Super prime (781-850) — 4.20%
- Prime (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 subprime borrowers and 20.24% for deep subprime borrowers.
Some auto lenders may also require a cosigner for those with lower credit scores. A cosigner is somebody with established credit who legally agrees to take responsibility of paying back the loan if the primary borrower fails to do so.
Some auto lenders may use a specific credit-scoring model
When deciding whether to extend a loan, auto lenders may use a specific Fair Issac Corporation (FICO) credit-scoring model called the FICO Auto Score. The FICO Auto Score is a variation on the general scoring model, designed specifically to predict the risk of a borrower defaulting on car payments. It ranges from 250 to 900, according to Experian.
Many auto lenders will consider more than a credit score, though. A borrower’s debt-to-income ratio, full credit history, and down payment amount will also affect the terms of the loan.
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