Auto loans aren't as hard to get as home loans, but the rates can be considerably higher. With poor credit, you could wind up paying five times the interest rate of a buyer with excellent credit. Because each lender defines its credit score differently, getting several quotes for your auto loan can help you get the best deal no matter your credit score.
FICO Score Impact
The main factor that determines your auto loan interest rate is your FICO credit score. Auto lenders make offers based on what tier your credit score places you in. Every lender's system is different, but there are almost always at least three credit tiers based on whether an applicant's credit history is excellent, average or poor. The tier you're in can make a big difference in what you pay.
Top Tier Credit
While each lender has different standards, a credit score of 740 should get you into the top tier. This score typically indicates at least five years of good credit, stellar payments on previous auto loans and low balances on credit card accounts. If you're in this range, you'll get the best rates and promotional dealer financing when it's offered. A score from 700 to 739 also puts you on excellent footing when applying for a car loan. You'll get the top rates, but perhaps not zero-percent financing or other special offers.
An average credit score would be something in the 660 to 699 range, according to both Autobytel and Cars Direct. You shouldn't have a problem getting an auto loan with this credit score. However, you'll pay more to borrow the money. You might get a loan around the prime rate, according to Cars Direct. This rate is a percentage point or two higher than what someone with top credit will pay.
Because lenders calculate their tiers in different ways, it pays to shop around when your credit score is in the average tier of 660 to 699. If you're on the high end of that range, you might fall into a higher tier in a particular lender's model. If you're closer to 660, some lenders may place you in a tier with poor credit scores, which would significantly increase your interest rate. For example, according to MyFICO.com, that small difference in classification might change your interest rate from 6.6 percent to 9.71 percent. Getting multiple quotes helps you get the best rates possible.
FICO Auto Industry Option
In addition to your standard credit score, there's a specialized "FICO Auto Industry Option" credit score that some lenders and dealers use. This focuses on your previous auto loan history rather than other forms of credit. If your credit score isn't great but you've always paid previous auto loans on time, your average score may still bring you a low interest rate.