There isn't one specific score that's required to buy a car because lenders have different standards. However, the vast majority of borrowers have scores of 661 or higher.
Dealerships will work hard to get you into a car. Depending on the dealership you're working with, they may be able to secure you a loan even if you have no credit history. You may be required to bring extra documentation like proof of residency, proof of income, and even personal references to help get approved.
If you're buying a new car, experts advise that your down payment should be at least 20% of the car's total purchase price. If you're buying used, you can put down 10%. If you can make a 20% down payment, it may be a good idea to do so.
Buying a new or used car with no credit isn't easy, but some auto lenders specialize in working with people who don't have an established credit history. And there are things you can do, like getting a co-signer or making a down payment, that could help improve your chances of being approved for an auto loan.
The average down payment on a car with no credit is around 10% or $1,000, whichever is the larger amount. However, you can use your down payment strategically to offset higher interest rates.
If you are offered a 2% interest rate for three years (or 36 months), 3% for four years (48 months), 4% for five years (60 months), and 5% for six years (72 months), your monthly payments for a $40,000 loan will be as follows: Three years – $1,146. Four years – $885. Five years – $737.
A person making $60,000 per year can afford about a $40,000 car based on calculating 15% of their monthly take-home pay and a 20% down payment on the car of $7,900.
What Are the Disadvantages of a Large Down Payment? Providing more money down doesn't guarantee a lower interest rate, and it can cut into your savings. Depending on the vehicle you choose to buy, 50% can be a lot of money to put down on an auto loan.
Many brands and their dealers have programs that can help you get financed. Automakers such as Ford, Kia, and Hyundai are known for working with borrowers who have lower credit scores. In addition, CarsDirect has a network of dealers that specialize in bad credit car loans whether you're considering a new or used car.
Yes, it's possible to finance a vehicle purchase with a 500 credit score or even below that. Keep in mind, though, that you can generally expect limited options, as well as high interest rates and fees. If possible, try to improve your credit before applying.
Applying for a $40,000 loan
You'll have the most luck getting approved for a $40,000 loan with at least a very good credit score (at least 740), and a DTI ratio of 36% or lower.
Consider a Buy Here Pay Here program: Even with no credit history or a low credit score, you might find luck with a Buy Here Pay Here (BHPH) program. These programs, which are usually offered through dealerships, have some requirements. But once you're enrolled in the program, a cosigner isn't necessary.
Set A Monthly Savings Goal
Say you want to buy a vehicle that will cost roughly $40,000 after taxes and fees, and want to save for a 20% down payment, getting a monthly payment amount that agrees with your budget. That means you'll need to save $8,000.
Individuals may be able to live comfortably on $40,000 a year. Families, however, may struggle with this salary, especially in areas with a higher cost of living.
It's good practice to make a down payment of at least 20% on a new car (10% for used). A larger down payment can also help you nab a better interest rate. But how much a down payment should be for a car isn't black and white. If you can't afford 10% or 20%, the best down payment is the one you can afford.
An increase in your monthly payment will reduce the amount of interest charges you will pay over the repayment period and may even shorten the number of months it will take to pay off the loan.
NerdWallet recommends spending no more than 10% of your take-home pay on your monthly auto loan payment. So if your after-tax pay each month is $3,000, you could afford a $300 car payment. Check if you can really afford the payment by depositing that amount into a savings account for a few months.
FICO says paying down your overall debt is one of the most effective ways to boost your score. Don't close paid-off accounts. Closing unused credit card accounts reduces your available credit and can lower your credit score. Keeping them open and unused shows you can manage credit wisely.