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Financing a car can seem daunting considering there are different qualifications that you must meet in order to buy a car. Furthermore, different lenders will have different rates and your eligibility can even depend if you’re buying a new or used car. But what kind of credit score do you need to buy a used one?

The minimum credit score needed for a used car loan

A photo illustration of a hand holding a smartphone showing a graph with the credit score
How is a FICO score different from a credit score? | Rafael Henrique/SOPA Images/LightRocket via Getty Images

There are many different scoring models for credit scores. For example, if you’re used to using the Credit Karma app on your phone, then you’re used to seeing your VantageScore based on the TransUnion and Equifax credit bureaus. However, when you fill out an application for an auto loan, the lenders typically check your FICO Auto 8 credit score, which is different.

To check your Fico Auto 8 score, then you can sign up with Experian in order to check it. That FICO score ranges from 300 to 900 and, as always, the higher your score the better chance you have of getting an auto loan with a good finance rate. Fortunately, according to Credit Karma, there is no universal minimum credit score for auto loans. But your score will have an effect on the auto loan terms that you receive.

A lower credit score can result in a high rate

Car signs Lease or Buy. Sign from car dealers around the Toronto area.
Car signs Lease or Buy. Sign from car dealers around the Toronto area. | (Photo by David Cooper/Toronto Star via Getty Images)

If you’re planning to buy a used car, then it’s recommended that you know what your credit score is before you apply for a loan. You can check Credit Karma but we recommend checking with Experian as well so that you have a well-rounded idea of what your score is since they will be different.

NerdWallet notes that a target credit score of 660 and above should get you an interest rate around 6% or below. According to a June 2020 report from Experian, the average credit score for a used car loan was 657 and the average score for a new car loan was 721. But that doesn’t mean that you need a stellar rate to qualify. In fact, Experian noted that almost 30% of the car loans last year went to applicants with credit scores lower than 600.

Keep in mind, though, that the lower your credit score, the higher your interest rate could be. NerdWallet reported that subprime credit scores (501 – 600) typically receive an interest rate of around 17% for a used car loan. But higher, non-prime scores (601 – 660) typically returned interest rates in the 10% range. If your credit score is higher than 660, then you can look forward to rates in the 3-5% range, depending on your lender, your income, the price of the car, etc.

Why are used car loan rates higher than new car rates?

Two men on a car dealership lot
Car Dealership | Getty Images/Bob Riha, Jr.

Why Do Dealers Love When You Have Bad Credit?

Used car loan rates are usually higher than new car loan rates because you’re buying a car that has already begun to depreciate, which lessens its value, says Cars Direct. Also, since the car is older, it’s more at risk of breaking down or needing repairs, which means that it’s more of a liability. It’s for these reasons that lenders will typically charge higher interest rates for used cars.

Ultimately, your rate will depend on your credit score. So if you’re looking to get the best rate on a used car, then you can keep track of your credit history and report by using simple online tools like Credit Karma. There might not be a minimum score to qualify for a loan, but it’s important to put your best foot forward when applying for one.