There is no universal minimum credit score needed to finance a car. However, low scores often result in higher interest rates.
Get pre-approved for financing before you shop. This helps you determine your maximum loan amount and understand credit terms, including annual percentage rates (APR) and length of the loan (number of months). Ask dealers for a written out-the-door price that includes dealer fees and taxes.
Lease
Car leasing is a way to get behind the wheel of your dream car without shelling out the entire cash price. Instead, you pay to use the vehicle for a set period, then return it or buy it at the end of the lease term. Leases usually require a refundable security deposit, a down payment and some fees. There are often mileage restrictions and a lack of freedom to make modifications to your leased vehicle.
Leasing a new vehicle may be more difficult for those with a lower credit score. Many lenders and lease companies consider credit scores when deciding whether to lend or lease a vehicle to you. In some cases, a low credit score will mean you have to pay more upfront and/or each month. Many car leasing agreements also allow you to terminate your lease early, so be sure to read the fine print to understand your options. You can still build credit by making on-time payments, though.
Finance
Car financing means you’ll pay for your new vehicle with a loan. The amount you borrow and the length (term) of your loan will determine your interest rate. Many factors, including credit history, credit score and loan amount, get weighed when you apply for a car loan. That’s why shopping around for the best car loan is smart.
Some banks, credit unions and online lenders offer car loans. Dealerships also arrange their own financing—known as in-house or buy-here, pay-here finance. These deals can sometimes be more expensive than direct lending because dealers have to add a profit for arranging the financing and may charge other fees as well.
High interest rates mean elevated monthly loan repayments, which can reduce a potential buyer’s purchasing power. This may lead them to downgrade their vehicle expectations or delay a purchase altogether. Increasing car loan interest rates can also lead to tighter credit standards, making it harder for some people to secure an auto loan.
Loan
Buying a car with a loan requires careful consideration of your credit scores, your ability to make a monthly payment and what add-ons you want. These include service contracts, GAP insurance and extended warranties.
A number of lenders offer competitive terms on auto loans, including traditional banks and online lenders that provide preapproval for a loan before you start shopping. Shop around to find the best financing before you go to a dealership, where rates and fees are usually higher.
Some automakers create captive financing divisions to offer low-rate or 0% interest specials on new vehicles through dealers. These are typically reserved for buyers with excellent credit. Taking on any new debt will cause your credit scores to dip temporarily, but making consistent payments on time should help your credit score rebound over time. It’s possible to get an auto loan with a credit score below 700, though your options are more limited than for those with higher scores.
Credit Card
Credit cards let you earn rewards and save on interest for a limited time, so it might seem appealing to make car payments with them. But the strategy can be risky for a number of reasons.
Putting a large purchase on a card can raise your credit utilization, which makes up 30 percent of your credit score. This means you’ll be closer to your credit limit than usual, which can lower your scores.
Additionally, once the 0 percent period ends and you’re paying an ongoing variable rate, your debt will start growing rapidly. It’s important to have a plan to pay off the balance as quickly as possible.
It may be better to look into personal loans instead, which offer more predictable terms and rates than credit card interest. If you have good credit, you might be able to get approved for one with a low debt-to-income ratio. A lower DTI can help you qualify for auto loans with excellent terms.cars on finance
