Today it is easier to get a car loan with a credit score of 680 than it ever has been in the post-recession era. Lenders have been easing open the credit taps, opening themselves up to a wider array of borrowers, not just those with “prime” credit.
680 FICO: Subprime Credit
A credit score of 680 is still considered to be subprime, though it is at the upper end of the spectrum. That usually means a higher than prime interest rate and a shorter loan term. If you have paid FICO or another credit score provider for your credit score to learn that is 680, you may have a surprise in store. The score you bought is not the one that will be used when your car loan application is being considered.
The majority of lenders look at your credit score from FICO, but not the one you see. When you apply for a car loan, FICO provides a lender its ”auto-enhanced” credit score. This score looks at your previous use of car loans and weights the score based on that behavior. If you have made at least twelve on-time payments for a car loan, your auto-enhanced score is going to be higher than your basic score. If you have been irresponsible with a car loan in the past, let’s say you have a repo on your credit report, it will be significantly lower. FICO only provides its auto-enhanced score to recognized lenders.
Important Factors: LTV, DTI
Lenders will also look at other aspects of your financial situation when considering your car loan application. With a credit score that is considered to be subprime, a lender will look more closely at the loan-to-value (LTV) of the vehicle, your debt-to-income(DTI) ratio, and the amount of your down payment.
Lenders will consider offering a loan for vehicles with an LTV between 85 and 115 percent. Typically, a subprime borrower will need an LTV that is closer to 85 percent. If your trade does not bring the LTV into that percentage, you will need to offer a larger down payment. A person who has a prime (721) or higher credit score can get a loan with a DTI of up to 45 percent, but a subprime borrower will need a ratio that is closer to 30-35 percent.
Recommendations for Approval
You can address the LTV and DTI easily. By shopping around and haggling, you can get the price of the vehicle lowered, increase the amount offered for your trade, or both. You can lower your DTI by making extra payments on your credit cards, paying off small installment loans prior to buying a car, or shopping around for a better price on cable, phone, and internet.
You should also shop your loan to at least three lenders. One should be a traditional bank, another should be a credit union, and the third should be an online specialty lender. Shopping your loan will ensure that you are able to find the lowest interest rate and the best possible terms for your car loan. Since you are at the upper end of the subprime credit tier, you may be eligible for loans from lenders who don’t generally work with “bad credit” borrowers.