You know it’s time for you to get a car — your first vehicle, in fact. Having complete control over your own means of transportation will be a huge milestone. But first, you have to figure out how you’re going to pay for it. Most of us don’t have a large enough stockpile of cash on hand to buy a vehicle outright, meaning we depend on taking out a loan from a bank, credit union, or other lender to pay the dealership — then focus on repaying that loan over the course of years. And, of course, the terms you’re able to get on an auto loan depend heavily on your credit rating as a borrower. You may be wondering: What’s a good credit scores for a first-time car buyer like me? Keep reading to learn more about what lenders like to see on applications and how this factor can affect your car loan.
How Credit Scores Affect Auto Loan Interest Rates
There’s no “magic number” when it comes to credit ratings for car loans, as lenders may approve borrowers with a wide range of scores. However, credit score does affect the annual percentage rate (APR) for which you’re able to qualify for. So, a higher credit score heightens your chances of getting a competitive loan and paying less in interest.
According to data from WalletHub, here’s how auto lenders segment credit scores for new car purchases:
|Super Prime||781-850||2.84 percent|
|Deep Subprime||300-500||13.98 percent|
How much of a difference does taking on a high-interest loan make on your financial bottom line? Well, consumers with the lowest credit scores pay $40 more per month on average than consumers with the highest credit scores. When you consider the length of most car loans — often 48, 60, or 72 months — you’ll see that this can ultimately mean a difference of thousands of dollars.
Technically speaking, there is no minimum credit score required to get approved for a first-time buyer auto loan. However, a higher score does increase your chances of qualifying for a loan and a competitive interest rate to boot.
Credit Scores for New vs. Used Cars
Another consideration to keep in mind is that requirements for new cars are different than the requirements for used cars — as are the average interest rates for each respective loan type. Are you looking to be the very first person to drive a vehicle off the lot or are you looking for a cost-effect car with some miles already on it?
As NerdWallet cites, the average credit score recommended for a used-car loan was 657. The recommended score for a new-auto loan was higher, at 721. This is due in part to the fact that drivers tend to borrower more money for a new vehicle, so lenders like to see a stronger credit history and application here than they do for pre-owned vehicles.
While these benchmarks are useful to keep in mind, remember there are generally options for borrowers with a wide range of credit — including some lenders who specialize in approving drivers with low credit or no substantial credit history to speak of. Again, you can anticipate that interest rates will be higher on these loans than on more “prime” products.
The real answer to, “What’s a good credit scores for a first-time car buyer?” is really: The highest score you can achieve before applying. Thankfully, though, there’s no minimum requirement set in stone.