What kind of credit score do I need to buy a car?

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shutterstock_47817556 When it comes to buying a car and shopping for a car loan, you have a lot of options. But the cost of those options depends on one critical piece of information: your credit score.

Your credit score could be standing in the way between you and an affordable auto loan, and it may even determine whether you can take out a loan at all.

Like any loan, an excellent credit score will help you qualify for better terms and a low, affordable interest rate. For a car loan, this could mean an interest rate as low as 3-4%. On the other hand, if you have credit score below 620 and you’re applying for an auto loan, you could end up with a very high interest rate, upwards of 18% or 20% – costing you thousands of dollars more over the lifetime of your auto loan.

And if you have a credit score of around 500 or lower? A car loan may be out of the picture entirely.

But bad credit doesn’t mean that you can’t buy a new set of wheels. Regardless of your credit score, you still have other financing options if you want to purchase a car.

How to Buy a Car with Poor or Average Credit

Check Your Credit Score First: Before you begin the car loan application process, start by checking your credit score. This will help you predict the interest rate you will qualify for on your auto loan and plan for the potential costs. A credit score below 620 is considered “subprime,” meaning you are considered a very risky borrower and will be subjected to higher interest rates.

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Try to Boost Your Credit Score Before You Buy a Car: Even a small boost to your credit score could save you hundreds of dollars on your loan’s monthly payment – not to mention over the lifetime of your car loan. Start repairing your credit by reconciling any delinquent accounts or accounts in collections and checking to make sure your credit report is 100% accurate.

Look for the Best Rate, Not the Best Monthly Payment: Lenders may tempt you with a car with a low monthly payment, only to lock you into a high interest rate. Look for a car loan with the lowest APR rate, and don’t get distracted by the lure of a lower monthly bill – you’ll just pay more in the long run.

Approach Your Bank: Even if you don’t think you will qualify for a car loan, check with your bank or a local credit union first. A local bank may consider other factors beyond your credit score when lending you money, like the number of accounts you have opened, your history with the bank and any good cosmic karma you’ve stored up (well, maybe not that last one). It’s always smart to start with your bank when taking out a car loan, since car dealers typically won’t give you the best interest rate.

Consider Buying Used: If you have a poor credit score, you may be in other financial trouble as well and taking out a car loan might not be in your best interest in the first place. Consider buying a used car instead of a newer model; you won’t have to borrow as much money to finance a pre-owned vehicle.