If you are planning to buy a car, you should have knowledge of your current credit score and what score is needed to buy a car. A credit score of 700 or higher is typically a good start to find favorable terms for auto-loan. The higher your credit score, the lower the interest rate will be, and vice versa.
What is a Good Credit Score to Buy a Car?
In an Experian report in September 2019, the average credit score for a new-car loan is 715 and 662 for used-car loans. However, if you have a lower credit score than average, you don’t need to worry as you can still get a loan to buy a car. There are roughly 25% of car loan borrowers with a credit score below 600, while almost 5% of used-car loan borrowers have scores below 500.
Car Loan Rates Based on Credit Scores
If you do not meet the average credit score to buy a car, there is no need for you to be worried. It is still possible to get a car with a lower score. However, this could mean a higher interest rate and a higher car insurance rate, as well.
To know more about the interest rates based on your credit score, here are the rates that you should be aware of:
Excellent Credit (750+)
People with an excellent credit score rating of 750 or higher have higher chances of getting lower interest rates when buying a car. The average auto loan interest for people with excellent credit scores is 4.98% for a new car while 5.23% interest rate for a used car.
Good Credit (700-749)
People with good credit scores of 700 to 749 will have an average interest rate of 5.07% for a new car and 5.32% for a used car.
Fair Credit (650 – 699)
For people with a fair credit rating with scores between 650 to 699, the average auto loan interest for a new car is 11.69% while 11.94% interest rate for a used car.
Below Average Credit (450 – 649)
Below-average credit scores of 450 to 649 have an average loan interest rate of 17.08% for a new car while 17.33% loan interest falls for a used car.
Very Bad Credit (499 or less)
These are called deep subprime borrowers. There is still a possibility that you will get approved for an auto loan. However, they pay a very high-interest rate with an average of 18% for a new car and 18.25% average interest rates for a used car.
Ways to Boost Credit Score Fast
In general, your credit score determines whether you are approved or not for applications for a credit card, mortgage, and auto loan. If you wish to buy a car and want to pay lower interest rates, there are ways to boost and improve your credit score.
Clean up Your Credit Report
Keeping a clean credit report is a great factor to determine decisions for finances and even employers. It is advisable to check your credit reports. Check if you have any late payments or unpaid bills. You should also send a dispute report for any inaccurate information. You can request free credit reports for each of the following credit reporting companies; Equifax, Experian, and TransUnion.
Pay Down Balance
When you have higher credit utilization, it can most likely affect your credit score. To improve your credit score, you can try to keep an outstanding balance to less than 30% of your overall credit limit.
Pay Twice a Month
One of the greatest factors that may affect your credit score is the history of your credit payments. Pay a least the minimum of your loans twice a month to keep your running balance lower.
Increase Your Credit Limit
Another way to boost your credit score is to increase your credit limit. However, you should keep in mind to not overspend your new credit. This shows lenders that you can be trusted with large amounts of credit.
Opening a New Account
Having multiple credit cards may actually boost your credit score. This may help you when you try to apply for an auto loan. However, you should be careful as having too many credit cards may harm your score.
It is possible to get a car you like with a lower credit score. However, there are chances that these auto-loan companies will offer you a higher interest rate. Before you buy a car, it is smart to know your credit profile and find ways to work on your credit score.