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Consumers with a 500-credit score usually find options for financing a vehicle. Unfortunately, these loan options typically feature exorbitant interest rates and other unfavorable terms.
The prices of both new and used vehicles in the U.S. are higher than ever before. Thus, buyers with bad credit will get approved for car loans, but affordability is a big problem.
Can I Get a Car Loan With a Credit Score of 500?
Data shows that roughly 16% of all car loans in the U.S. involve borrowers with a sub-600 credit score. This segment includes many “deep subprime” borrowers with sub-500 credit scores.
Lenders recognize that applicants with poor credit scores pose a greater risk. To help offset risk, lenders usually impose hefty interest rates and fees.
The average interest rates for car loans in the U.S. is approximately 3.86% for new and 8.21% for used vehicles. But those with a 500 or lower credit score get rates of roughly 12.84% for new and 20.43% for used vehicles.
One reason why lenders will provide auto loans to those with bad credit is that car loans are a type of secured loan. Here, the vehicle acts as collateral that affords the lender some security.
If borrowers stop making car payments, the lenders can repossess the vehicle to help recoup its losses.
Borrowers with bad credit usually must have verifiable employment and steady income. Often, these lenders also have some down payment requirements.
What is the Minimum Credit Score Required to Buy a Car?
The credit score needed to finance a car differs among lenders. You will usually need a fair-to-average credit score of about 600 for most traditional car loans.
No official minimum credit score exists in the realm of automobile financing. Typically, the interest rates that lenders impose increase as credit scores decrease.
What do lenders consider a bad credit score? Most lenders assess prospective borrowers based on their FICO Score. The following table shows the different levels of FICO Scores.
FICO Score Ranges
|800 or more||Excellent|
|740 to 799||Very Good|
|670 to 739||Good|
|580 to 669||Fair|
|300 to 579||Poor|
Most subprime lenders will look at other factors beyond only your credit score. For example, your employment status, current income, your debt-to-income ratio, and more.
Credit Scores and Interest Rates – How Do They Work?
Your credit score is a three-digit number ranging from 300 to 850. This score represents a snapshot or summary of your creditworthiness. Often, lenders will approve or deny applicants for credit based solely on this score.
The information within your credit report is the basis for credit score calculations. Your credit history is a summary of all account activity that lenders report.
The three main credit reporting bureaus are Experian, Equifax, and TransUnion. The Fair Isaac Corporation (FICO) and VantageScore create credit scoring models. The majority of lenders rely on FICO Scores, which consider the following metrics:
- Payment History (35%): Your record of borrowing and repaying debt is the largest factor. Lenders rely on historical data as a key indicator of future behavior.
- Amounts Owed (30%): This factor considers your overall amount of debt. Yet, your credit utilization rate (ratio) is often more influential. Your utilization rate is a percentage. The calculation divides the sum of all credit card balances by the sum of all credit card account limits.
- Length of Credit History (15%): Lenders favor those with a multi-year history of responsible credit use.
- Credit Mix (10%): Showing creditworthiness using two or more types of credit accounts is preferable. For example, a “mix” of installment loans, revolving credit accounts, or mortgage loans.
- New Credit (10%): Avoid too many recent “hard credit inquiries” on your report. Lenders view multiple new credit inquiries as a sign of possible financial problems.
The following table shows the significant impact that credit scores can have.
Car Loan Estimate By Credit Score
|Credit Score Range||Loan Total / Term||Average APR||Monthly Payment||Total Interest|
|Superprime: 781-850||$20,000 vehicle / 48 months||5.99%||$470||$2,541|
|Prime: 661-780||$20,000 vehicle / 48 months||7.83%||$487||$3,360|
|Non Prime: 601-660||$20,000 vehicle / 48 months||12.08%||$427||$5,318|
|Subprime: 501-600||$20,000 vehicle / 48 months||17.46%||$582||$7,930|
|Deep Subprime: 300-500||$20,000 vehicle / 48 months||20.62%||$651||$9,531|
Source: Car Loan Rates
How to Get a Car Loan With Bad Credit
Go to a Used Car Dealership
Used car dealers typically have relationships with banks and credit unions. They also likely encounter buyers with poor credit regularly.
Car dealers are usually motivated to sell cars. Thus, their finance team might work hard to find you reasonable financing.
There is a “buy-here, pay-here” (BHPH) subcategory of used car dealers. These dealers offer “in-house” financing for those with no credit or bad credit. BHPH dealers often have an undesirable vehicle selection and impose sky-high interest rates.
Make a Down Payment
Having a down payment might be the difference between a loan approval or denial. A significant down payment might also help you qualify for loans with lower interest rates.
A good rule of thumb is to have a 20% down payment for a new car or 10% for a used car. Data from 2022 shows that new car buyers paid an average down payment of $6,000. The average down payment among used vehicle buyers during this time was roughly $3,500.
Consider a Cosigner
Another way of qualifying for a car loan or for a loan with favorable rates involves a cosigner. This is an individual that assumes financial responsibility for paying the loan.
Cosigners are assuming risk; thus, they are usually family members or close friends. Obviously, having a cosigner with good credit is ideal.
How to Improve Your Approval Odds Before Applying for a Loan
Try to Get Pre-Approved
You might consider seeking loan pre-approval from a bank or other financial institution. Here, the lender checks your credit and (hopefully) explains your financing options.
A pre-approval provides you with some key information. You should have a good understanding of your price range, monthly payments, and more.
Having pre-approval documentation might also allow you more negotiating power. Remember to ask the dealer if they could find you a loan with even better rates.
Make Last Minute Credit Score Improvements
You are unlikely to increase credit score overnight.
There are several possible ways of quickly improving your credit before getting a car loan. Some examples may include:
- Paying off any delinquent collection accounts
- Improving your credit utilization rate. Here, you can pay down credit card balances or ask your car issuers for higher account credit limits.
- Correcting any errors on your credit report
- Consider options for reporting rent or utilities to the credit bureaus
Can I Get a Car With a 500-Credit Score With No Money Down?
Despite your poor credit score and lack of down payment, you will most likely find some options. Based on the circumstances, these options are likely unfavorable.
Finding a willing lender may take a little more effort. You will likely need proof of steady income and should expect to pay high-interest rates.
If possible, you might consider postponing your purchase. This is especially true if your only choices are high-interest, long-term loans. In the meantime, you can work on saving a down payment and improving your credit.
How Big of a Loan Can You Get With a 500-Credit Score?
There is no standard “maximum” car loan that someone with a 500-credit score may get. With a 500-credit score, you should expect limitations. Yet, most subprime lenders only finance loans of $5,000 or more.
Instead, consider focusing on the goal of getting a practical and affordable car. Your car loan choices are likely those with high-interest rates. Thus, these high rates themselves will often create affordability challenges.
Getting a large car loan with a 500-credit score may exacerbate your financial problems. Why enter a loan with exorbitant interest rates on a larger principal amount than needed?
What Credit Score is Needed to Buy a Car Without a Cosigner?
No universal or standard minimum credit score rule exists for obtaining a car loan without a cosigner. Equifax categorizes a “poor” credit score as one below 580. At this level, borrowers will often experience difficulties in qualifying for credit.
Borrowers with bad credit usually have fewer loan options. Most of these options will likely have high-interest rates.
With a low credit score, there are likely some requirements for qualifying. For example, you should have verifiable employment and a steady income. You might also encounter down payment requirements.
- What Credit Score is Needed to Buy a Car With No Money Down?
- Do Multiple Car Loan Applications Hurt Your Credit?
- How to Get a Car Loan With Bad Credit
- How Much Does Your Credit Score Increase After Paying Off a Car?
- How Long Does a Repo Stay on Your Credit?
- My Car Was Repossessed. What Happens Next?
- How Soon Can I Get My Repossessed Car Back?
Anthony Amodeo is a regular finance writer in both business-to-business and business-to-consumer industries. Particular areas of focus include personal finance, small business, real estate, and more. He is a graduate of Kent State University. His credit scores are top tier.