There is no set number that is universally used as a cut off for car loans. Each lender has its own criteria to make the decision between approval and denial. Banks require higher credit scores, typically 680 or higher. Anything below this is considered “sub-prime.” Many credit unions will work with such applicants, from credit scores of 680 down to 620, typically. Below that, things get tricky, and your only choice may be a subprime auto lender or BHPH dealership. Fortunately, we work with many dealers and lenders that serve consumers with lower credit scores.
General Loan Criteria
Credit is not the only consideration, either. Below are common approval requirements.
- Loan to value (LTV)…the loan should be for an amount that is between 85 and 115 percent of the vehicle’s value.
- Age of vehicle…less than 8 years old. This can be stretched to 10 years old if your credit score is above 700.
- Term of loan…36 to 72 months, but can be as long as 84 months for higher credit scores.
- Miles on vehicle…under 100,000
- Down payment…at least 10 percent or $1,000.
- Time on job…two years.
- Time at residence…again, two years.
- Monthly income before taxes…normally a minimum of $1,400, but some lenders will accept $1,250.
- Credit score/profile…500 or above. Should have four paid as agreed lines of credit, one being an installment loan with twelve on-time payments of $150 or more.
- Total debt to income ratio including the new payment…the majority lenders look for less than 36 percent, but some specialty lenders may consider a high as 45 percent.
Credit scores fall into five categories: excellent, good, average, poor, and bad. The scores that each encompasses are listed below.
- Excellent: 720 or higher
- Good: 680-719
- Average: 620-679
- Poor: 580-619
- Bad: 500-579
You can expect to pay the current prime interest rate if you have an excellent credit score and may not need to offer a down payment in order to get a loan. If your score falls within the good range, your interest rate will only be a point or two above the prime rate and you will only need to offer a trade in as a down payment.
Car Loans with Credit Scores Below 680
Getting approved for the car loan that you need starts to get a little sketchy when you credit score falls below 680. Lenders want more and more money down and require higher interest rates. In the average credit score range you can expect to need 10 percent of the total purchase price as a down payment. That may be in cash, trade, or a combination of the two. Your interest rate will most likely be five percentage points above prime. If your score falls into the poor credit arena, you are going to need close to twenty percent as a down payment. In many instances at least $1,000 of that will need to be in cash, the remainder can be a trade-in. Your interest rate will be between six and 10 points above prime.
That brings us to bad credit auto loans. Many specialty lenders will offer an auto loan to nearly any credit score, but the loan will come at a premium. First you will need to have at least twenty percent of the total purchase price as a down payment. The majority of that down payment will need to be in cash. The interest rate will be between 14 and 25 percent. Lastly, the length of the loan will be fairly short. You will only have between 30 and 36 months in most instances.