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Lenders consider a variety of factors when making decisions regarding auto loan applicants. Among the key assessments include the prospective borrower’s credit, income, and down payment.
Most borrowers with steady incomes will find options for financing a vehicle. This applies regardless of their credit score or down payment.
What Credit Score is Needed to Buy a Car With No Money Down?
Borrowers with poor or fair credit may qualify for car loans without a down payment. But these loans will likely have exorbitant interest rates.
Car loans without a down payment requirement are routinely promoted today. Marketing suggesting that buyers can “just sign and drive” with “zero down” is common.
Borrowers with credit scores of 680 or more will likely find the most appealing loan options. Without a down payment, these consumers should find loans with reasonable interest rates.
Those with scores in the 580 to 669 range may qualify for loans without a down payment. Yet, these consumers will likely encounter higher interest rate loans.
Those with a sub-580 credit score will struggle to qualify for loans without a down payment. The available options typically have sky-high interest rates and a limited vehicle selection.
Car loans are a type of secured loan. Lenders are more willing to assume the risk because the car acts as security in the form of collateral.
If the borrower defaults on the loan, the lender will repossess the car to recoup losses.
What’s the Minimum Credit Score to Buy a Car?
Those who qualify for traditional car loans typically have a credit score of over 600. No standard or official minimum credit score exists to qualify for a car loan.
Usually, in car loans, interest rates will rise as the borrower’s credit score declines. Here, an inverse correlation or negative relationship exists.
In late 2022, roughly 14% of borrowers had scores between 501 and 600, while only 2% had sub-500 scores. Yet, the data involving borrowers with credit scores below 500 might be deceiving.
This occurs because of the “buy here, pay here” car dealers. They provide direct customer financing and usually don’t report to the credit bureaus.
The following table shows the average interest rates that borrowers pay based on their credit scores.
Average Car Loan Interest Rates by Credit Score
| Borrower Type | FICO |