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August 10, 2020
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Auto Loans for Good, Fair and Bad Credit

Auto Loans: If you are worrying that your credit score can potentially keep you away from buying a car, you have for sure underestimated how much car dealers want to sell you one. However, a higher score will always be a big help in getting you a lower interest rate.

As per the latest data available by an Experian report, the average credit score required for a new-car loan was 715, and 662 for a used-car loan.

However, roughly 25% of car loans went to borrowers with credit scores lower than 600, as per the data provided by Experian. And almost 5% of the used-car loans went to those having scores even below 500. (However, less than 1% of the new-car loans and leases did, though.)

List of Best Auto Loans:

List of Best Auto Loans

If you have a credit score in the low 700s, then you might see rates on used cars of about 6.5%, compared to a whopping 17% or more for a buyer who has a credit score in the mid-500s, as per the data provided by Experian.

For a $20,000 loan with a span of five years, that amounts to a monthly payment of $498 compared to only $392 for the buyer with better credit. Moreover, in most of the states, bad credit can also mean much costlier car insurance rates.

Costlier Car insurance Rates:

Credit score Average APR, new car Average APR, used car
Superprime: 781-850 3.68% 4.34%
Prime: 661-780 4.56% 5.97%
Nonprime: 601-660 7.52% 10.34%
Subprime: 501-600 11.89% 16.14%
Deep subprime: 300-500 14.41% 19.98%

If your score is somewhere slightly below 700, you should then be very well prepared for questions about the negative items on your credit record and you should be able to provide documents for your answers. This is true for any number closer to around 680.

If you are concerned about getting an approval, then prepare for it by focusing on the positives in your financial life. It’s not a rare phenomenon that people with major shortcomings on their credit scores are routinely approved for car loans. For example, a person who has a low credit score due to a business debt but has never missed a car payment in the past 20 years shall be approved. One is also more likely to get approved if you have got a stable job, own a home and/or pay every month a substantial down payment.

Financial issues:

Financial issues

Buyers are required to show pay stubs, proof of personal residence, telephone bills and proof of current full-coverage auto insurance if any. If you go there with all your finances sorted in a decent fashion, you may end up getting your car. Have a low score, then you should be prepared to show documents that you have been paying bills on time at least for the past six to eight months. You were late in the past while paying your bills, then you should be ready to explain why. Lenders want to be assured that you have overcome your financial issues and can prove it to them through documents.

If a lender tells you that your score is not high enough, then you still might be able to pull off the approval for financing (or financing at a lower rate) from elsewhere. Some big dealership which has a lot of sales will most likely have arrangements with lenders who specialize in finding the best financing options for people with credit score constraints.

Loans for Credit less than 600:

Loans for Credit less than 600

Lender Annual Percentage Rate (APR) Minimum Requirements
Capital One 3.99% to 8.34%

(new cars with autopay discount)

Credit: 500

 

Loan: $4,000

My Auto Loan 2.74% to 27% Credit: 500

 

Loan: $8,000

Lending Club (Refinancing) 3.99% – 24.99% Min credit: 510

 

Min loan: $5,000

 

Max vehicle age: 10 yrs

mileage: 120,000 mi

Innovative Funding Service (Refinancing) 2.49% – 23.99% Min credit: 500

 

Min loan: $5,000

 

Max vehicle age: 10 yrs

mileage: 150,000 mi

RefiJet (Refinancing) 2.99% – 17.99% Min credit: 580

 

Min loan: $10,000

 

Max vehicle age: 10 yrs

mileage: 200,000 mi

Open Road Lending 2.9% – 24.9% Min credit: 500

 

Min loan: $10,000

 

Max vehicle age: 10 yrs

mileage: 140,000 mi

Rate Genius 3.49% – 25.87% Min credit: 550

 

Min loan: $10,000

 

Max vehicle age: 7 yrs

mileage: 100,000 mi

Loans for credit more than 600:

Loans for credit more than 600

Lender Annual Percentage Rate (APR) Minimum Requirements
Light Stream 3.99% to 8.34%

(new cars with autopay discount)

Credit: 660

 

Loan: $5,000

Consumers Credit Union 2.99%

(with discounts)

Credit: 640

 

Loan: $250

AutoPay (Refinancing) 1.99% – 17.99% Min credit: 600

 

Min loan: $2,500

 

Max vehicle age: 11 yrs

mileage: 125,000 mi

Clearlane (Refinancing) 2.49% – 23.99% Min credit: 640

 

Min loan: $250

 

Max vehicle age: NA

mileage: NA

It is a smart way to have some idea what dealers will look for when they check your credit profile. If you have a score which is between a 300-to-850 scale, then it is likely to give you a chance to get an approval for a car loan. You just have to abide by the rules and look for the best option available for you.

You can also check your FICO automotive score through the company’s official website. That score will give you more insight to where you stand in the current scenario.

A lot of lenders use auto-specific credit scores which weigh heavily on past car-loan payments.

If you have got some time to postpone your car purchase, then you should start working on improving your credit score.

  • Paying all the bills on time, without a miss
  • Keep the credit card balances low compared to credit limits
  • Don’t apply for other credit option within 6 months of applying for a new car loan
  • Keep the old credit cards open unless you have a compelling reason to close them
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