What credit score is really needed to buy a car? If you’re just starting out or are recovering from a setback, a lower credit score can make it difficult to qualify for an auto loan. No matter your financial situation, you still need a safe, reliable vehicle to get where you are going.

The good news is that affording a car loan with a 600 credit score or less is not out of reach. You don’t need perfect credit, but it’s important to be aware of how applying and qualifying for a loan is different with a lower credit score. 

In this blog, we take a look at some key things to keep in mind when applying for auto financing with a lower credit score, including:

• How Lenders See a Lower Credit Score

• Credit Scores and Interest Rates

• How Much Interest Will You Pay on an Auto Loan?

• Documentation Requirements

• Making a Down Payment

• Getting a Co-Signer

• Financing Your Car Through a Credit Union

• Get Rolling with Listerhill Credit Union

How Lenders See a Lower Credit Score

When you apply for a car loan, your lender is primarily interested in two things about your financial situation: 

• Your income, or how much you can afford to pay back monthly.

• Your credit score, which suggests how likely you are to repay your debts.

Having a lower credit score indicates to lenders either that there is insufficient data on your credit record to determine whether you are a good credit risk, or that you have had trouble making loan payments or repaying bills on time when you have borrowed in the past. 

Checking your credit score is a good idea before talking to any lender. While many lenders are still willing to extend credit to most borrowers with scores in the 600s, this will have an impact on the interest rate, as well as the rates and terms on any loan you can qualify for. 

Credit Scores and Interest Rates

Wondering what the interest rate on a car loan with a 600 credit score is likely to be? 

Your interest rate is the portion of the loan charged to you that’s also known as the annual percentage rate. Interest rates vary widely, and your credit score is the primary indicator of the type of rate you’ll get.

How important is your interest rate to the overall cost of your loan? The following examples illustrate the difference between a low and high-interest rate over the life of an auto loan.

Low-Interest Rate Loan

High-Interest Rate Loan

Borrowers paying the higher interest rate of 12.28% will pay almost $80 more every month, and almost $4,000 more over the life of their auto loan for the same new vehicle. You should expect to pay even more interest on a used vehicle because lenders believe there is more chance you will need to sell or replace an older vehicle sooner. 

How Much Interest Will You Pay on an Auto Loan?

Lenders use the FICO auto score guidelines or other credit scoring models to divide borrowers into six credit score ranges from Superprime to Deep Subprime based on credit score. The latest Experian State of the Automotive Finance Market Report for the last quarter of 2023 showed average rates for each of the categories as follows for new and used cars respectively.

With a score of 600 or just above, you’ll fall into the nonprime range and should expect to pay interest of around 9.60% on the money you borrow in an auto loan.

Documentation Requirements

A good credit score does not get you out of having to do the paperwork. Whether your credit score is 600 or 800, you will need to provide your lender with some documentation proving your ability to repay your loan.

This includes:

• Proof of employment via a pay stub - you generally need to make at least $1,500 per month to qualify for an auto loan

• Tax returns if you are self-employed

• Driver’s license

• Proof of residency in the form of a utility bill

Making a Down Payment

While there are some zero down payment loan options for those with excellent credit, you are more likely to need to put down some money when you purchase your car.

This is because a down payment effectively gives you “skin in the game” as far as financing your car goes. Because you have already paid for a significant portion of your vehicle, lenders theorize, you will be more likely to follow through on repaying the financed portion of your purchase. Down payments typically vary from as little as 2% to up to 20% of vehicle value. 

In addition to increasing the chance that you can access funding for your vehicle, a down payment also reduces the portion of the value of your car that you will be charged interest on. That means putting more money down upfront saves you on interest payments later.

Getting a Co-Signer

For borrowers struggling to qualify for affordable auto financing, co-signing a loan application with a spouse, family member or good friend with better credit may put a car within your reach.

Remember that your cosigner will be legally and financially responsible for your loan, so be sure to work out all of the details with them to avoid a damaging disagreement. In most cases, your co-signer will also want to be on the vehicle’s title, so that if you can’t make payments they can take over ownership of the car.

Financing Your Car Through a Credit Union

Credit unions offer measurably lower interest rates on their loans than commercial banks, making them a popular choice with many people, no matter what their credit standing.

In fact, recent figures released by the National Credit Union Administration showed that the average rate for a 48-month loan on a new car from a credit union at the end of last year was 6.25%, compared with an average 6.83% from banks, while a 48-month loan for a used car averaged 6.45%, compared with 7.21% from banks.

This is because credit unions are not-for-profit organizations run for the benefit of their members only. Where commercial banks need to maximize profits to deliver earnings to shareholders, credit unions can offer lower rates on car loans to make vehicle ownership more affordable for their members.

And, while credit unions like Listerhill Credit Union offer many add-on services to make car buying services just as easy as through a bank or specialized auto lender, their ability to lend locally means you often get more personalized attention and a loan tailored to your own particular financial needs.

Get Rolling with Listerhill Credit Union

At Listerhill Credit Union, we know how important it is to have a safe, reliable car to get you where you are going in life. That’s why we offer auto loans to fit any needs and budget. 

We offer our members:

• Low interest rates

• No application fees — ever

• Loans up to 100% of the vehicle's cost

• Flexible payback options

• Convenient application process and payment options

Talk to us about your car ownership challenges. We’ll help you find a financing solution to get you rolling sooner. Contact us today, or click below to learn more.

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