Manufacturer auto loans are the kind of financing options you would receive if you walked into an authorized dealership and talked to somebody in their credit department.
Almost all of the major car makers (Ford, Toyota, GM, etc.) offer financing through their own company, eliminating the need to go to a bank for a loan.
Some manufacturers look strictly at your credit score and usually require a FICO of around 560 or above to even consider giving you a loan.
Others may take your overall credit history into account in addition to your credit score and typically require 540+ if you have a good payment history.
Depending on the kind of car you want to purchase, and your income, you may be able to get approved if your credit score is a little bit under those minimums.
If you fell behind on your bills for a few months but just got a well-paying job, some finance departments may be understanding and give you a loan. Maybe.
Regardless of where you get a loan, if your credit score is at or just above their minimums, you will likely have either a high interest rate or a longer term on your note. After a couple of years of on-time payments and a higher credit score, you can usually refinance into a loan with a much more reasonable interest rate.
Being Approved for a Bank Loan
Big banks differ when it comes to a minimum credit score for a car loan but the lowest they usually take is around 580.
Unlike a manufacturer, banks are only making money on the loans themselves, which require them to be a bit more selective regarding who they approve. Car makers can afford to drop their minimums since they are already making money on the car sale.
Credit unions, especially one you are a part of, generally have slightly lower minimum required credit scores for a car loan.
Even so, anything less than about 540 and you might be getting instantly declined. Depending on your lender, there may also be certain stipulations on the age of the car you can buy, its mileage, and the required down payment.
Getting The Best Car Loan Rate
Having a better credit score will usually get you a better interest rate on your car loan, but what kind of score do you need for the absolute lowest rates? Through a manufacturer, you will need at least a 730 credit score in order to get special financing such as 0% APR or rates lower than about 2%.
Banks will always charge you at least some amount of interest, though with a credit score above 720 you will usually qualify for their lowest rate.
When you do go into a dealership to purchase a car, it does help to have at least some type of financing ready ahead of time. In most cases, it makes sense to let the dealership’s credit department try to beat the interest rate you already have, since it can save you money.
Buy Here, Pay Here Dealerships
Many “Buy here, pay here” dealerships do not even run a credit check, instead relying on proof of income to satisfy their lending requirements.
While this is a good option if you have very poor credit, the interest rate you will end up with will probably over 10% and they may require a healthy down payment.
You can absolutely find decent vehicles at these types of dealerships, but you are unlikely to find anything made within the last couple of years.
Part of the trade off of approving you regardless of your credit score is a lack of options when it comes to the actual car.
How to Improve Your Credit Score
Improving your credit score can help you land a car loan and get a more reasonable interest rate. Removing negative information from your credit report can shoot your score up as much as 40 or 50 points in the span of a month.
If all else fails, you can wait five to seven years before negative information comes off of your report, while making on-time payments can help your score climb.
Many banks will point you in the right direction when it comes to what you can do to increase your score quickly, especially if they stand to gain your business because of it.
Most of the time, you can get literature from loan officers that go into detail about the exact steps required to get a better score.
Getting a car loan with poor credit can be difficult, but it is usually not impossible.
Finding the option that works best for you might involve going around to a few different lenders or perhaps even a dealership that offers financing themselves.
A few steps you can take to increase your chances of getting a car loan include:
- Pulling a copy of your credit report
- Taking care of negative accounts
- Putting together a list of potential lenders