Your credit score is a major factor in whether you'll be approved for a car loan. Some lenders use specialized credit scores, such as a FICO Auto Score. In general, you'll need at least prime credit, meaning a credit score of 661 or up, to get a loan at a good interest rate.
Used cars are easier to get financed for depending on your credit new cars have a higher value and there for lenders get squeemish lending on a new car more than that of a used car!
Borrowers may be denied for vehicle financing due to bad or limited credit, a large amount of debt or errors in an application. The first step following auto loan rejection is to contact the lender to request the specific reasons for the denial.
Getting a car loan is not especially difficult unless: You have a poor credit history (or very little history), in which case you may not be approved, may not be approved without a large down payment, or be charged a higher interest rate than normal.
Many dealers use a FICO Auto Score instead of a traditional FICO Score or VantageScore when evaluating your car loan application. Your FICO Auto Score can range from 250 to 900, depending on your previous auto loans.
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.
When financing a car, lenders require documentation that proves your identity, income, residency, and insurance coverage. You can also expect to provide your Social Security number and vehicle information.
It won't matter how good your credit score is if they're not sure of your income. Habitually poor credit history – If your credit reports show you continually pay your bills late, make partial payments, and/or show a number of unpaid bills in your past, you may get denied, especially if you have a poor credit score.
Americans are having a harder time getting approved for auto loans, as banks worry over the risk of defaults at a time when high interest rates and elevated car prices are squeezing budgets. With borrowers struggling to make their monthly car payments, banks are responding by tightening credit standards.
However, for auto loans, lenders usually prefer a debt-to-income ratio below 36%. The minimum income necessary to qualify for an auto loan may vary, but most lenders prefer an applicant to have at least $1,500 to $2,000 in monthly income before taxes.
One rule of thumb for a down payment on a car is at least 20% of the car's price for new cars and 10% for used — and more if you can afford it.
Check Your Credit Score
Your credit score can be a major factor in whether you'll get approved for an auto loan and the interest rate you receive. You can check your FICO® Score☉ for free from Experian.
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.
Average monthly car payments for new vehicles jump slightly year over year. The average car payment for a new vehicle is $737 monthly, according to Q3 2024 Experian data — up 0.7% year over year. Used cars have an average monthly payment of $520, down 3.3% over the same period.
When you use an auto loan to buy a car, your credit score will likely take a slight hit due to the increase in your debt load and the hard inquiry that results when the lender checks your credit. Thankfully, the credit score should only dip a few points temporarily.
Under rare conditions, a car loan can be denied even after it was already approved. It's important to review all loan documents and pay attention to any contingencies listed on the loan. A preapproval does not mean that you have been approved for a loan.
While not always required, your recent bank statements can help the dealership both verify your current residency and income. You might use them to show newer or less common income sources that aren't reported on pay stubs or your last tax documents.
Proof of Income
A bank statement or the stub of a paycheck will suffice--the dealer needs to verify your employment and that you can make monthly payments without issue.
Most auto dealers work with banks or captive acceptance corporations for financing. You are typically required to provide employment and financial data as part of the application, and they will do a “hard pull” of your credit report. They may or may not verify employment or bank balances.
You're more likely to get financed for a used car than a new one if you're a bad credit borrower, simply because you're likely to get approved for a payment that fits better with used vehicle prices.
Most borrowers need a FICO score of at least 600 to get a competitive rate on an auto loan. If you have a low credit score, you may still qualify – but you should consider building your score before you start searching for loans.