Here We Go Again With The Credit Score Thing! Well, your credit score has everything to do with loans and mortgages, and buying a car is not out of the question. The thing is, you don’t need a minimum credit score to buy a car or get an auto loan. But in case there’s no money for a down payment and no cosigner, let’s see if there’s a specific credit score needed to buy the car.
Understanding credit ratings for auto loans
Lenders use your credit score to assess your financial stability and ability to pay down your debt. Credit scores are categorized into tiers.
Your FICO Auto Score, which is used by most lenders to analyze auto loan applications, can be lower or higher than your usual credit score depending on previous auto loans, how much you’ve borrowed, and how well you have made the payments.
Your actual FICO Auto Score can also differ from one lender to another. Each lender looks at the information in your credit report and weights it based on what they think is most significant.
For example, an auto lender might think it’s great that you paid off your last auto loan a year ago and conclude that you have a high auto credit score from their perspective. Another lender may feel that adding an auto loan to your budget is dangerous because you don’t currently have one, and it could lower your auto credit score.
What is the Minimum Credit Score Needed to Buy a Car Without a Cosigner?
You don’t need a specific credit score to buy a car without a cosigner. In fact, if you have enough cash to pay in full, you won’t need a loan or have your credit assessed.
You will stand a better chance if your credit score is at least 670 which is considered good by lenders. There are, however, financing solutions available to applicants with credit ratings as low as 300.
What do you need to get a car loan without a cosigner?
While qualifications for a car loan without a cosigner differ by lender, you’ll have a better chance of being approved if you meet the following criteria:
- Constant source of income
- A substantial down payment was saved.
- Good credit
- Car insurance with full coverage
- Citizenship or permanent residence in the United States
- You must be at least 18 years old.
Ways to improve your chances of approval
If you’re looking for a decent deal on an auto loan without a cosigner, keep these tips in mind.
#1. Improve your credit score
Taking the time to improve your credit score before applying for an auto loan will help you get a lower interest rate or more favorable terms. You can improve your credit score by using your credit cards wisely and making timely payments on other debts.
#2. Save money for a bigger down payment
The more your down payment, the less you will have to borrow. This means you won’t have to finance the bulk of your vehicle, reducing the risk for a potential lender.
#3. Increase your earnings
Taking a second job or asking your existing employer for additional shifts will help you save up for that big down payment. It also shows lenders that you are serious about paying back your loan, indicating that you are a reliable borrower even if your credit is less than perfect.
#4. Pay off your existing debts
A lender would likely see your other financial responsibilities as a danger if your debt-to-income ratio (DTI) is too high. As a result, before applying, you may want to prioritize debt repayment and increase your credit utilization rate.
#5. Compare different lenders
Understanding your options is key to getting a competitive rate, even if you don’t have a cosigner. Most credit bureaus treat several vehicle loan applications as a major blow to your report if you apply within a certain time frame. Take advantage of this by comparing as many lenders as possible before making a final decision.
#6. Look for a less expensive vehicle
If you don’t have a cosigner and can’t afford a large down payment, you may need to opt for a less expensive vehicle. It implies that you won’t need to borrow as much, which may make it easier to get approved with little or no credit.
Is a cosigner necessary if I have a good credit score and want to buy a car?
Borrowers with strong credit rarely require a cosigner when applying for a vehicle loan. In fact, if you have solid credit, a steady source of income, and few obligations, you can expect a relatively low APR, often 2% to 5%.
Lenders want cosigners for borrowers who may be riskier. So if you’ve built up your credit and don’t have any major red flags, like low income or a lot of debt, you won’t need a cosigner.
What credit score is needed to buy a car with no money?
Buying a car with no money up front may sound too good to be true, but many dealerships, banks and credit unions will let you do just that. All you need to buy the car is a good credit score and proof that you make enough money to repay the loan.
In general, you need a FICO credit score of at least 700 to qualify for an auto loan if you don’t have money for a down payment. Additionally, you must pay a reasonable price for the car in question, equal to or less than the Kelley Blue Book value or equivalent. If you’re paying too much, you may be able to get free financing from the dealership that charges you that price, but you won’t be able to get it from any other financial institution.
If you have a trade-in, it’s even easier to get a no-rebate loan from the dealer since they can easily manipulate the amount they provide you for the trade-in to make it a lucrative deal for them. Financial organizations may have stricter requirements in times of bad credit.
Regardless of your credit score, you will be required to provide normal auto loan documentation to purchase a car. This means you’ll need your two most recent payslips, which must show your total earnings since the beginning of the year. Bring your tax return for the last two years if you are self-employed. It’s a good idea to check your credit record before applying for a loan. If you’re having issues that are hurting your score, now is the time to fix them. Don’t wait for the lender to run your report to see if there are any problems.
NOTE:
Because new cars depreciate quickly, it’s easy to find yourself “upside down” in a no-money deal (meaning you owe more than the car is worth). If you run into financial difficulties and have to sell it, the proceeds will not be enough to pay off the debt. You will have to make a difference yourself. Some lenders will let you take out an unsecured loan for the difference, but this normally requires a great credit score and is entirely at the lender’s discretion.
How to get a car loan with bad credit
If your credit score is 660 or below, you will almost certainly encounter a hefty vehicle loan APR. But don’t give up! There are ways to deal with this. Budgeting first can help you get accepted for an auto loan and set you up for success.
#1. Plan ahead for a higher interest rate
Experts recommend limiting the entire cost of transportation to less than 10% of your budget. You’ll pay more in interest if you have a low credit score, so you should look for a low-priced automobile and/or a high down payment.
According to Experian, successful subprime auto loan applicants financed smaller average amounts — about $29,000 to $35,000 — than individuals with higher credit scores who had larger loans — about $34,000 to $39,000.
For example, if you can afford a $450 payment over a 72-month period, here’s how much you should finance based on your credit score’s vehicle loan average APR. It should be noted that the credit ranges differ according to the source of the data.
#2. Get a Cosigner
A cosigner for an auto loan could be extremely beneficial. Even if the other person doesn’t have the best credit, lenders often see two people accepting loan liability as a favorable sign that payments will be received every month. A cosigner can increase your chances of approval and reduce your car loan APR.
The downside to this is that both people with an auto loan are fully responsible for the repayment. So if one party fails to pay, the other has to step in. Otherwise, the credit ratings of both candidates will suffer.
#3. Look for pre-approval elsewhere
Each lender may evaluate your credit history in slightly different ways and give you a different APR loan. That’s why it’s essential to shop around for any form of loan you need. Don’t rely on a dealership to complete this task for you. Car dealerships, as intermediaries, can increase your APR by up to two percentage points. Instead, look into the best vehicle loans for bad credit and, in particular, apply to your local credit union.
Applying to various lenders won’t hurt your credit; major credit bureaus allow consumers a two-week window to evaluate the purchase. If you apply for all loans within 14 days, your credit is no more damaged than if you apply for just one loan.
How to improve your car credit
Check your credit score before you start buying so you know where you stand. The best strategy for boosting your credit in preparation for an auto loan is to make timely payments on your current auto loan each month. If you don’t currently have a car loan, here are some alternative ways to boost your credit score in addition or as an alternative to that:
- All bills must be paid on time.
- Pay off your credit card debt.
- Maintain your credit accounts.
- Do not apply for more credit for six months before applying for an auto loan.
Your credit score can be generated from one of two credit score models:
FICO rating. The Fair Isaac Corporation FICO score is by far the most widely used credit score technique. It mainly considers your payment history and the amount you owe against your credit limits. A FICO score is created after six months of credit history.
Advantage Score. The VantageScore was created by the three major credit bureaus (Equifax, Experian and TransUnion) to more accurately reflect customer behavior and risk. Your VantageScore is primarily determined by your total credit usage and credit mix. This credit score can be obtained in just one month of credit history.
In conclusion
You can buy a car without needing a cosigner, regardless of your credit score. Banks and credit unions often offer affordable rates to customers with strong to great credit, while those with bad or no credit should consider lenders and online dealerships first.
Frequent questions
Can I have a car with a 600 credit rating?
Yes, you can get an auto loan with a 600 credit score
What credit score do you need for an auto loan?
Generally, you’ll need a credit score of 661 or higher to qualify for an auto loan. However, you may still be eligible for a lower credit car loan.
What is considered a 570 credit score?
Has a score of 570 is considered a below-average credit score.
