September 20, 2023

How does Credit Score impact Car Loan Interest?

Learn how your credit score impacts car loan interest and drive away with the best deal. Start now!

Buying a car is a significant decision, and the interest rate on your car loan plays a crucial role in determining your monthly payments.But how does your car loan credit score factor into this?"Many people ask, 'What is the average car loan interest rate by credit score? This article will delve into how your credit score for a car loan can impact your interest rates, shedding light on what you need to know before heading to the dealership.

Read More: To unravel the relationship between credit scores and car loan interest rates, explore these detailed topics:

Understanding Credit Scores and Car Loans

Credit scores, often referred to as your car loan credit score, are numerical representations of your creditworthiness, categorized into different ranges such as poor, fair, good, and excellent. These ranges are vital when it comes to the credit score for car loans. Lenders use these categories to determine the interest rates they offer. 

A good credit score to buy a car, falling into the good or excellent range, often leads to lower interest rates. Conversely, a lower score might mean higher interest rates or even difficulty in obtaining a loan. Understanding your credit score and how it fits into these ranges can help you anticipate the interest rates you might face, allowing you to plan and budget for your new car purchase effectively. 

Want to know where your credit score stands? Learn more about your credit score at Bright Money and drive the best deal for your car loan.

How Credit Scores affect Car Loan interest rates?

The relationship between credit score ranges and car loan interest rates is direct and significant. Here's a general breakdown of the average car loan interest rate by credit score:

  • Excellent (750 and above): You may qualify for interest rates as low as 5%
  • Good (700-749): Interest rates might hover around 7%
  • Fair (650-699): Expect interest rates in the range of 10%
  • Poor (below 650): Interest rates could climb to 16% or higher

Disclaimer: These figures illustrate what credit score is needed to buy a car with lower interest rates. saving you money over the life of your car loan. Do keep in mind that these figures might keep changing.

The Impact of Federal Reserve's decisions on individual Car Buyers

The Federal Reserve's decisions to change interest rates have far-reaching consequences on the economy, including car loan interest rates. When the Federal Reserve increases interest rates, banks and financial institutions often follow suit, raising the rates they charge for loans. 

For individual car buyers wondering what credit score they need to buy a car, this means that the cost of financing can fluctuate. with these broader economic trends. Those with higher credit scores may still secure favorable rates, but those with lower scores may find themselves facing steeper costs. 

Understanding how these macroeconomic factors translate into personal financial decisions can help car buyers make informed choices. 

What Credit Score is needed to buy a Car at different interest rates?

When buying a car, your credit score for a car loan plays a vital role in determining the interest rate you'll receive. Here's what you need to know about the credit score for a car loan:

  • Excellent Credit: Qualify for the lowest interest rates, possibly below 3%.
  • Good Credit: You might see rates around 4-5%.
  • Fair Credit: Interest rates could be 6-8%.
  • Poor Credit: Rates may exceed 10%, or you might face challenges in obtaining a loan.

So, What credit score do you need to buy a car? The answer varies depending on the interest rate you're aiming for. Understanding your car loan credit score and how it aligns with these ranges can guide you in securing the best possible rate for your car loan.

Understanding APR vs. Interest rate in Car Loans

When considering a car loan, understanding the difference between the annual percentage rate (APR) and the interest rate is crucial. Here's a comparison in table form:

Difference between APR and Interest Rate in Car Loans | Bright Money
By comparing both the APR and the interest rate, car buyers can make more informed decisions and choose the loan that best fits their needs and budget.

Refinancing options for car loans and credit score considerations

Refinancing a car loan offers the opportunity to lower the interest rate, especially if the current rate is higher than what's typical for the borrower's credit score. 

Refinancing your car loan involves taking out a new loan with better terms, and your credit score for car loan refinancing is crucial to pay off the existing loan. This can lead to significant savings over the life of the loan. However, credit scores play a vital role in this process.

A higher credit score may lead to a lower interest rate, while a lower score may limit refinancing options. Researching and pre-qualifying with multiple lenders, understanding credit score requirements, and considering the timing of refinancing can lead to a successful outcome. 

The Real Cost of a Car: Comparing different Loan Scenarios

The total cost of buying a car involves more than just the sticker price. Let's consider an example to understand how different factors affect the final cost:

  • Car Price: $20,000
  • Down Payment: $4,000
  • Loan Amount: $16,000
  • Interest Rate: 5%
  • Loan Term: 60 months (5 years)

In this scenario, the monthly payment would be approximately $302, and the total interest paid over the life of the loan would be around $2,120.

Now, let's change the interest rate based on a different credit score:

  • Interest Rate with Higher Credit Score: 3%
  • New Monthly Payment: $287
  • Total Interest Paid: $1,220

In this example, a lower interest rate, possibly achieved through a higher credit score, leads to savings of $15 per month and $900 in total interest over the life of the loan.

Comparing Lenders and their Credit Score requirements

Different lenders interpret the credit score needed to buy a car in various ways. Traditional banks might have stricter requirements, while credit unions may offer more flexibility. Online lenders could provide competitive rates based on your car loan credit score.

 It's essential to shop around and compare these lenders, as the same credit score might fetch different interest rates from different sources. Understanding how each lender views your credit score can help you find the best deal for your car loan.


Understanding the average car loan interest rate by credit score is vital for anyone asking, 'What credit score do you need to buy a car. Your credit score is a key to potential savings and financial flexibility. Whether you're wondering about the credit score for a car loan or asking, What credit score is needed to buy a car? This guide has provided insights to help you navigate the process. Actively working on your credit score and understanding how lenders view it can put you in the driver's seat when buying a car. It's your road to financial success.

Looking to Refinance Loan or Consolidate multiple debts, signup at Bright today, and get upto $8000*. APR starting 9%.

Further Reading


Q: Can a co-signer with a higher credit score lower my car loan interest?

A: Yes, a co-signer with a higher credit score may help you qualify for a lower interest rate on your car loan. Lenders consider the co-signer's creditworthiness in addition to yours, potentially offering better terms. However, the co-signer becomes equally responsible for the loan, so it's a decision that requires careful consideration.

Q: Does the car's make and model affect my loan interest rate?

A: Some lenders may offer different interest rates based on the car's make, model, and age. Newer or more expensive cars might attract lower interest rates, while older or less reliable models might have higher rates. Your credit score remains a significant factor, but the vehicle itself can also influence the rate.

Q: Can I negotiate my car loan interest rate with the dealer?

A: Yes, car loan interest rates can sometimes be negotiated with the dealer. If you have a strong credit score or a pre-approved loan offer from another lender, you may have leverage to negotiate a better rate. It's wise to shop around and understand your options before discussing financing with the dealer.

Q: How does a down payment affect my car loan interest rate?

A: A larger down payment reduces the loan amount, potentially leading to a lower interest rate. It also decreases the lender's risk, as you're financing a smaller portion of the car's value. While the down payment's effect on interest rates may vary by lender, it can positively impact your loan terms.

Q: Can a trade-in vehicle affect my car loan interest rate?

A: A trade-in can reduce the loan amount, possibly affecting the interest rate, but it's generally more related to the lender's policies and the car's value. By reducing the financed amount, a trade-in might lead to more favorable loan terms, but the impact on the interest rate specifically may vary.


*Bright Credit is a line of credit that can be used to pay off your credit cards. Subject to credit approval. Variable APR range from 9% –24.99%, Credit Limit ranges from $500 - $8,000. APR will vary based on prime rates.  Final terms may vary depending on credit review. Monthly Minimum Payments are as low as 3% of the outstanding principle balance plus the accrued interest. Also, you can choose to pay more than the minimum due if you want to pay down the loan faster. Credit line originated by Bright or CBW Bank, Member FDIC. Products and services subject to state residency and regulatory requirements. Bright Credit is currently not available in all states.

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