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What credit score is required to get a loan on a car?
- Thread starter jelletburges
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Pretty much any. It’s the interest rate you’ll pay with a low credit score that will kill you. You’ll want to be in the 800 range to get the best rates. If you aren’t, find a way to live within your means and pay cash.
Most US lenders will finance just about any range of credit for a car, as it would be a secure loan. Basically, if the bank doesn't get their money, they will take back their car.
The interest rate will depend on your credit score, and many some other factors.
If you are getting the car from the dealership, it is often better to take the crappy credit terms they offer and refinance later, even as soon as you get the car. I did this with the last two cars I purchased.
Basically, I was able to negotiate a much lower price for the car, but only if I financed with them versus another bank or paying cash. I refinanced one a few months later for a much cheaper rate, and the other as soon as I got my first bill, saving my a lot of money in interest, all while getting the car for much cheaper.
The interest rate will depend on your credit score, and many some other factors.
If you are getting the car from the dealership, it is often better to take the crappy credit terms they offer and refinance later, even as soon as you get the car. I did this with the last two cars I purchased.
Basically, I was able to negotiate a much lower price for the car, but only if I financed with them versus another bank or paying cash. I refinanced one a few months later for a much cheaper rate, and the other as soon as I got my first bill, saving my a lot of money in interest, all while getting the car for much cheaper.
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Above 661+ will get you a loan with a decent rate. The higher the better. Lower is fine as well but you will not get as competitive a rate. Anything lower than 500 and you are not going to get a good rate at all.
Nope, it is actually not. Today's society has indoctrinated people to use credit for everything. Where as in the past, people lived within their means and used credit for major purchases.
A good strategy is to go to your bank and arrange for a preapproved car loan through them, and then when at the dealership you've already aware of the amount you know you are approved for, and this cuts through a lot of the stuff they try to throw at you when you're already in love with a given car and want it so bad, just HAVE to have it, no matter what..... A preapproved loan sets limits on you right from the get-go and that is not a bad thing at all.
You simply state that you've got a preapproved loan and that saves a lot of time since they don't have to have you jump through their negotiations and financial hoops for a loan. Of course they aren't going to be thrilled about this. Once all the financial details are worked out to everyone's satisfaction you write a check to the dealership, which then triggers the actual loan from the bank.
Bottom line with regard to the value of this strategy: after you've test-driven the car and know that it is the one you want, when it is time to talk deals, by doing the preapproval process through your own bank, credit union or other financial institution, this gives you an accurate idea of exactly what you will be able to afford in buying a new car, what the actual loan amount will be, the term in months (years), the interest rate, etc., etc. This is an approach which has worked for many people, and saves a lot of frustration and heartache.
You simply state that you've got a preapproved loan and that saves a lot of time since they don't have to have you jump through their negotiations and financial hoops for a loan. Of course they aren't going to be thrilled about this. Once all the financial details are worked out to everyone's satisfaction you write a check to the dealership, which then triggers the actual loan from the bank.
Bottom line with regard to the value of this strategy: after you've test-driven the car and know that it is the one you want, when it is time to talk deals, by doing the preapproval process through your own bank, credit union or other financial institution, this gives you an accurate idea of exactly what you will be able to afford in buying a new car, what the actual loan amount will be, the term in months (years), the interest rate, etc., etc. This is an approach which has worked for many people, and saves a lot of frustration and heartache.
Usually it's best never to say you got a reapproved loan as otherwise you loose bargaining power. Always let them believe you are going credit with them and never tell them a monthly number; otherwise, you will get shafted.
I rarely use cash for anything, and use credit whenever I can, making credit work for me, not against me.
I generally avoid getting into these topics, as my two cents will most likely not have an impact on anyone's mind, but paying cash for a car, especially when someone has poor credit, is generally not a great idea, financially speaking.
If one's credit is very good, it doesn't make sense to pay cash because great credit could get you a low interest rate, and investing that cash would most likely return more than what one would pay in interest for the loan. Even putting the cash in a risk-free, high-yield checking account could net more than the cost of interest of an auto loan for someone with great credit.
If one's credit is fair, having a car payment is a credit-building method, and is especially helpful to have in a credit history for future lending, such as a mortgage. To a lender, having a fair credit history is typically a lot less risky than having no credit at all.
If one had the cash available for a car, but the interest rate is so bad due to poor credit, there is other things that can be done to make that cash work for you, rather than just flush perfectly good liquidity down the toilet on a depreciating asset. One thing that can be very helpful to a person with bad credit is borrowing against the cash you have in a secure personal loan, and then using the "borrowed" cash to pay for a car. It will only cost you a little bit in interest, like 1% or 2%, and each payment you make gets reported to the credit bureaus. This is one of the best ways of building or rebuilding credit.
The point is, in most cases, it doesn't make financial sense to pay cash for a car. Even if someone is dead set on using cash when purchasing a car at a dealership, financing can often get a better deal when negotiating the price of a car, as you can always pay off the car as soon as you get your first bill for the majority of auto loans.
I personally would consider a car a major purchase, but either way, major purchase or not, I would still advise most people to finance a car versus paying cash.
You mention how in the past people lived within their means, which I think is a good idea, but living within one's means and using credit is not necessarily different or competing things. People can, and financially speaking, should do both.
A problem I have this is particular topic is that "credit" is often discussed as a negative thing or a financial method to avoid, and that is just bad advice, imo.
What should be taught how to use credit responsibly, the consequences of not using credit responsibly, and the benefits of making credit work for one's self.
For many reasons that have been stated above but the simple fact is that FICO says the average American has a 695 credit score which falls into the “good” category. Having an 800+ score is likely never in the cards for a lot of people (max is 850) as it takes time to build credit history coupled with debt to income ratio.
Living within your means is definitely understandable but given the current climate can be hard. Imagine if you’re just starting life and only using cash. Hopefully you have a few thousand saved up from your teenage years (unlikely) so you buy a car for work and there goes all your savings so now you live paycheck to paycheck. Due to the fact that there’s zero cars worth buying used under $10K let alone new, you eventually get hit with repair/maintenance bill. You have no more cash though and potentially lose your job due to lack of transportation. Now, if you got a loan with a co-signer or decent interest rate you’ll pay a little more overall but won’t blow your life savings and have an emergency fund which is also sound advice.
People that preach pay in cash are out of touch with reality and must watch that joker Dave Ramsey. Additionally, if you pay cash for everything then your credit score would be crap so it’s contradictory to say the least. Finance advice is unique to everyone and people value different things. Lastly, I use my credit for everything and pay it off in full every month and have had a 800+ score for years so there’s nothing wrong with that either.
As someone who resides in North America, the ‘American financial system’ has always been broken, because the standards are too easy/to low when financing, when a large swath of consumers probably can’t afford what they’re purchasing based on APR.
What consumers don’t understand, is the term compounding. There’s nothing wrong with having ‘debt’, The caveat has to be that it’s debt you have to be able to manage. The problem with Americans in general, is they justify what they’re purchasing at the time, because mentally they believe they can just ‘pay it off later’, when they start adding charge on top of charge, and if then it comes to the point where the interest rate is high, and they’re making minimum payments, and now what started as something they could have paid off in six months, turns into six years.
The point is, I believe personally in cash flow, as I primarily pay everything in cash, but there are certain entities that obviously most people will finance in terms of a house, maybe an expensive sports car, boats, whatever…… If your interest rate is manageable based off your credit and factoring in what you generate for an annual income, there’s nothing wrong with financing. But the execution should be you need to make your payments in prompt and always ‘pay ahead’.
For example, my wife just purchased a $4000 mattress for our bedroom back in February, and the first thing the sales rep said, is ‘Did you want to finance it’. And we said we would pay cash, and then the sales rep says ‘You can finance for 0% and we don’t even check your credit’. So do you see my point? These Financial institutions don’t care about your credit, they want your business, even if you can’t afford what you’re buying. That’s why our system is broken.
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I was having a discussion with my neighbor about this exact concept the other day. Unfortunately I still have a (fairly sizeable) mortgage, but I have eliminated all other forms of debt in my life and was talking about how I was going to pay cash for my next car. He didn't seem to believe me, and even made the comment that it "wasn't realistic." I was taken aback, thinking "no, really, I have the cash. and I'm going to pay for it in cash." It was an interesting moment for me, to hear his surprise and how that concept really just didn't compute with his mindset.
It’s about making smart decisions.
Buying a $4000 mattress is already questionable, but then not taking a “free” loan to keep your cash flow up or taking the money and invest for a year to get at least 10% out of it and then pay off the mattress is beyond me. You already paid the interest rate with the overpriced mattress.
Oh, and by the way, for this thread. Usually when I sign up on a Mac forum my first question is also about financing a car.
I agree Chuck.
But the wifey was making the shot calling on this one. If I had it my way, I thought our prior mattress was perfectly fine, but she wanted the best, plus we paid for it in cash and it has a 10 year warranty. A happy wife is a happy life.
That’s a sentiment one can’t argue against.I agree Chuck.
But the wifey was making the shot calling on this one. If I had it my way, I thought our prior mattress was perfectly fine, but she wanted the best, plus we paid for it in cash and it has a 10 year warranty. A happy wife is a happy life.
Personally I’m happier paying cash. People who say it effects your credit score, who cares? When you own your own home everyone is quite happy to lend you money. I’m just happier saving up for things. I’ve never owned a credit card and never will.
Be real wary of being a co-signer, unless you don’t mind the prospect of taking on $30-40k debt.
My last mattress purchase wasn't anywhere near that amount, but if it is a really nice mattress, spending extra on something that you will be spending a third of your life in for the next 10-15 years isn't really that "questionable", imo.
Seriously, many people on this forum spend a third of that on a phone that they would replace in a few years.
I think my last one was $1200, and I don't really like it for sleeping. It just gets too hot for myself. My wife loves it though.
My next mattress, if I can find one with active cooling, and not the useless passive cooling that doesn't work for me, I would spend a few thousand more for it. Definitely worth it for a good night sleep.
Yikes. I wouldn't co-sign for anyone but my children if they needed it, but I definitely wouldn't let them get a car that expensive.
If someone needs a co-sign, then they don't need anything above $20k.
Although, I haven't purchased a car since 2018, maybe that is the entry level car price.
Funny someone asks this. I just went through the buying process. I thought I had totally screwed up my credit with some horrible decisions, and didn't think I could get it back to anything decent. after some 20 years, I had no real debt, no credit cards except for a secured one, and finally had paid off a car that I had bought, traded in, and had paid off as collateral for another car (I owed more than what it was worth), which was a 2005 Toyota Highlander.
In 17 years, it was finally time to get something else, as despite having the Highlander paid off for 6 years, it was costing more to keep it running than what it was actually worth. So it was finally time to see if I could get something new.
My problem: My credit scores according to 2 of the big 3 reporting bureaus (Equifax and TransUnion) had me in the low-mid 600s, meaning there would be a hard chance of me being able to get something new off the lot, if approved for anything at all. In fact, they still have me in that same range. But I did have over 3/4 of the cash on hand that I could put a hefty down payment on it and give myself a decently small monthly payment on it, if at all...
I was wrong.
The 3rd reporting bureau - Experian - was the tale of the tape. Despite no debt outside of owing on my house, no car payment for 7 years, and the last credit activity I had being 11 years ago (read: no recent credit footprint), Experian had my credit score in the low 700s. I was able to get into a new 2022 Toyota Highlander Hybrid XLE; Sticker price for those is in the upper 40k to lower 50k range, depending on any dealer markups.
What I will say is this: the paradoxical thing when it comes to building credit to get your credit score higher is that to build up that score, you have to go into debt. The reporting bureaus want to see debt on your credit report, but more importantly, they want to see that you have recent debt, and make payments on that debt. They want to see not just minimum payments, but that you pay it and pay it off between reporting periods. All of the reporting bureaus issue their reports on customers around the 25th to 26th of each month. If you pay off or significantly pay down or pay off your debt by the next time they issue their reports, that will show that you are able to handle your credit properly, and up go your scores. If you don't, or maintain a high balance, red flags will go up on your report, and your scores will go down. So definitely be sure to pay them off before the next reporting period, or pay significantly on them before that next reporting period.
But they also need to see that across multiple avenues of credit. Credit cards are one way; durable equipment (cars, appliances you make payments on, etc.) are another. Homes are a third. If you can show that you can manage to keep those payments on time or - in the case of credit cards - keep them down to less than 30% of the borrowing power you have for that particular card - your scores will go up. That doesn't mean apply for everything under the sun, because as people know, hard credit pulls will impact your credit score, plus stay on your credit report for two years.
So when you go to get that loan for a car, or better yet, see what financing you can get for that car, just know that a hard pull will be done, and that may be a good idea to see if any other line of credit may be good for you to open. I say that, because all hard pulls will only be done once and lower your score for a 30 day period. Any other hard pull after that 30 day period would further lower your score, so it may be a good idea to get them all done at once and take the single hit for the 2 years.
But as for a given credit score to have to get a loan for a car, I'd say that the score won't matter for the loan or financing; the score will come into play as far as how much the interest rate will be to pay back along with the payment. I was thinking because of what Equifax and TransUnion were both reporting that I'd have a high interest rate, maybe around 8% - 10% or higher, like what high risk credit cards would offer...
I got 2.75%, and that was from the dealership.
Don't hesitate to look at your local bank or better yet, credit union, for comparable loans. Even more than that, some credit unions actually have their own lots that you can buy cars from, or even their own repo lot. You can check there, plus even look into them as a place to refinance if your credit is or becomes good enough to do that. But definitely check your scores first, and do what you can to raise your scores higher, as well as routinely check your scores or do a soft pull of your scores, and then when you're ready, take that to whichever dealership you are looking to get a car from. You may be surprised at what you can get.
BL.
In 17 years, it was finally time to get something else, as despite having the Highlander paid off for 6 years, it was costing more to keep it running than what it was actually worth. So it was finally time to see if I could get something new.
My problem: My credit scores according to 2 of the big 3 reporting bureaus (Equifax and TransUnion) had me in the low-mid 600s, meaning there would be a hard chance of me being able to get something new off the lot, if approved for anything at all. In fact, they still have me in that same range. But I did have over 3/4 of the cash on hand that I could put a hefty down payment on it and give myself a decently small monthly payment on it, if at all...
I was wrong.
The 3rd reporting bureau - Experian - was the tale of the tape. Despite no debt outside of owing on my house, no car payment for 7 years, and the last credit activity I had being 11 years ago (read: no recent credit footprint), Experian had my credit score in the low 700s. I was able to get into a new 2022 Toyota Highlander Hybrid XLE; Sticker price for those is in the upper 40k to lower 50k range, depending on any dealer markups.
What I will say is this: the paradoxical thing when it comes to building credit to get your credit score higher is that to build up that score, you have to go into debt. The reporting bureaus want to see debt on your credit report, but more importantly, they want to see that you have recent debt, and make payments on that debt. They want to see not just minimum payments, but that you pay it and pay it off between reporting periods. All of the reporting bureaus issue their reports on customers around the 25th to 26th of each month. If you pay off or significantly pay down or pay off your debt by the next time they issue their reports, that will show that you are able to handle your credit properly, and up go your scores. If you don't, or maintain a high balance, red flags will go up on your report, and your scores will go down. So definitely be sure to pay them off before the next reporting period, or pay significantly on them before that next reporting period.
But they also need to see that across multiple avenues of credit. Credit cards are one way; durable equipment (cars, appliances you make payments on, etc.) are another. Homes are a third. If you can show that you can manage to keep those payments on time or - in the case of credit cards - keep them down to less than 30% of the borrowing power you have for that particular card - your scores will go up. That doesn't mean apply for everything under the sun, because as people know, hard credit pulls will impact your credit score, plus stay on your credit report for two years.
So when you go to get that loan for a car, or better yet, see what financing you can get for that car, just know that a hard pull will be done, and that may be a good idea to see if any other line of credit may be good for you to open. I say that, because all hard pulls will only be done once and lower your score for a 30 day period. Any other hard pull after that 30 day period would further lower your score, so it may be a good idea to get them all done at once and take the single hit for the 2 years.
But as for a given credit score to have to get a loan for a car, I'd say that the score won't matter for the loan or financing; the score will come into play as far as how much the interest rate will be to pay back along with the payment. I was thinking because of what Equifax and TransUnion were both reporting that I'd have a high interest rate, maybe around 8% - 10% or higher, like what high risk credit cards would offer...
I got 2.75%, and that was from the dealership.
Don't hesitate to look at your local bank or better yet, credit union, for comparable loans. Even more than that, some credit unions actually have their own lots that you can buy cars from, or even their own repo lot. You can check there, plus even look into them as a place to refinance if your credit is or becomes good enough to do that. But definitely check your scores first, and do what you can to raise your scores higher, as well as routinely check your scores or do a soft pull of your scores, and then when you're ready, take that to whichever dealership you are looking to get a car from. You may be surprised at what you can get.
BL.