Good Credit Scores for a Car

Interest rates fluctuate, so the rate you're offered on a car loan can change from week to week. However, your credit score is an indication of whether lenders will give you their best loan rates at any given time. People with the highest credit scores usually get the lowest interest rates on car loans, which saves them significant amounts of money over the life of the loan.

Prime Borrowers

According to Edmunds, data from the Experian credit-reporting company show that prime borrowers faced few problems getting car loans in the third quarter of 2010. The data classified people with credit scores of 680 or higher as prime borrowers. Such borrowers usually get automakers' and lenders' lowest interest rates on car loans because they're considered to be less risky customers who likely won't default on their loans.

Interest Rates

Edmunds notes in an article, "Car Financing in a Recovering Economy," that car buyers who had scores ranging from 700 to 719 in 2010 could get a five-year loan with an interest rate as low as 5.24 percent at banks. Car buyers who have credit scores of 619 or lower are usually classified as subprime borrowers, and they may not qualify for loans. Even people who had scores ranging from 630 to 669 received more expensive loans in 2010. According to Edmunds, banks required car buyers with scores in that range to pay an average interest rate of 8.45 percent on five-year loans in 2010.

Used Cars

People who have lower credit scores may get better loan terms in the used-car market. Edmunds notes that Experian's statistics show the average credit score of used-car buyers is 683. The average credit score of new-car buyers is significantly higher at 769. It's difficult for people to get the best loan terms on new cars if their scores fall below 700. Interest rates for loans are generally higher in the used-car market, but people with lower scores have a better chance of qualifying for loans in that sector.

Considerations

Car shoppers who don't have credit scores high enough to get reasonable loan rates should consider putting off a car purchase if they can. A Bankrate article titled "Check Your Credit First" shows how the cost of a loan is dramatically different based on the interest rate you receive. For example, a $20,000 car loan that's financed for five years with a 3.9 percent interest rate would have total interest charges of $2,045.71. The same loan amount financed for five years with a 7.9 percent interest rate would cost you $4,274.28 in total interest charges.