Ready for a new set of wheels? Before you start shopping, it’s important to understand how your credit score can affect the process, especially if you plan to finance a vehicle.
Read more: How an Ally Bank Spending Account can gear you up for your next car
How credit scores affect auto financing
Your credit score can impact your eligibility for auto financing and the rate you receive. A good credit score can suggest to a finance company that you're more likely to be able to pay in full and on time, but a lower score can make you appear riskier. Higher credit score typically get the lowest financing rates.
Which credit scores do finance companies use?
Two main credit scoring models could be consulted when you apply for auto financing:
FICO® Score
The FICO® Score model ranges from 300 to 850, with 850 being a "perfect" score, and is based on payment history, credit utilization, credit age, credit mix and credit inquiries.
VantageScore
VantageScore has scores ranging from 300 to 850. While VantageScore considers things like payment history and credit usage, these factors are weighted differently in the overall score. Your credit score can impact your eligibility for auto financing and the rate you receive.
Average auto financing rates by credit score
Credit scores can directly influence the rates you pay. The higher your credit score, typically the lower your rate.
Credit score range | Average APR: New cars | Average APR: Used cars |
|---|---|---|
Superprime781-850 | 4.77% | 7.67% |
Prime661-780 | 6.40% | 9.95% |
Nonprime601-660 | 9.59% | 14.46% |
Subprime501-600 | 13.08% | 19.38% |
Deep subprime300-500 | 15.75% | 21.81% |
Minimum credit score needed to buy a car
While the minimum credit score to buy a car can vary by finance company, there’s no universal minimum.
What credit score is needed to lease a car?
Dealers and auto leasing companies might have their own requirements, but there’s also no universal minimum credit score needed to lease a vehicle. Even so, having good credit generally leads to lower monthly payments and a more favorable overall lease deal.
How to buy a car with bad credit
Purchasing a car with poor credit isn't impossible, but it can be expensive. That’s why you should always work to build and maintain a good credit score. To prepare for the additional costs:
Budget for a higher rate
Factoring a higher rate into your monthly expenses can help give you a better idea of your price range and avoid a car payment you can’t afford. Use a monthly car payment calculator to estimate your finance charges and monthly payment.
Consider having a cosigner
Having a cosigner can work in your favor because finance companies can look at both of your credit scores when determining whether to approve you and what financing terms to offer you. Keep in mind: A cosigner is equally responsible for the debt if you default on payments, so both of you could face collection actions and negative credit score impacts if you fail to pay your monthly bill.
Shop around for preapproval
When you receive preapproval, it means a finance company has done a cursory review of your credit and income to determine the financing terms you might qualify for. Preapproval doesn't lock in a specific rate, though it can tell you which financing company is likely to offer the best deal.
Other factors that can help buy a car
Credit scores matter, but they're not the only things finance companies consider. These money moves can help you compensate for a score that’s lower than you’d like:
Make a larger down payment
The bigger your down payment, the less you need to finance. So, even if the auto financing you qualify for carries a higher rate, you can reduce your overall cost and even end up with a lower monthly payment.
Provide documents showing financial stability when requested
Finance companies want to know that you can repay the amount you owe. They may ask you to provide documents like the following as proof of steady, consistent income:
W-2s
Monthly pay stubs
Profit and loss statement(s) if you're self-employed or run a business
Investment income statements
Compare financing rates outside of the dealership
The dealership might be the first place you look to for auto financing, but it's essential to compare rates from other financing company. At Ally, we work with numerous dealers to offer auto financing for car buyers.
Build your credit before car shopping
Your credit score is an important factor when financing a car. Improving your credit score could help increase your odds of approval and land a better rate — putting you that much closer to driving off in your ideal car.
