What Is a Good Credit Score to Buy a Car?

You’ve likely heard the doom-and-gloom talk about how lenders have put loans on a much tighter leash in our post-recession economy. And it’s true; lenders are no longer giving out a loan to any old person with a government-issued ID and a smile.So what does this mean for you if you are in the car-buying market? How will you know if you are likely to receive financing or not?Let’s take a look at what will likely determine whether or not you can source a car loan.

What Goes into the Car Lending Decision?

There’s a big misconception out there about car loans that we should clear up right away. Here it is: the ability to take out a car loan is not entirely dependent upon your credit score.

Yes, your credit score plays a huge part in the process (especially when the lender is deciding on what interest rate they will tack onto your loan). However, it’s not the only piece of the puzzle. During the underwriting process, which is a fancy way of saying while the lenders are plugging in your numbers and figuring out if you are a good candidate for a loan, you must provide income verification and information about your current debt load.Your income needs to prove that you can afford the monthly payments as well as to pay back the entire loan, and your debt information must show that you have a healthy debt-to-income ratio after you take on this new loan. They even look at how much it will cost for you to insure the vehicle to make sure you are going to have enough money for everything.

Let’s shift our thinking a bit so that you can set yourself up for a solid financial future.By doing this, you are setting yourself up for double interest benefits. The first is you will never pay a middle man or finance company interest again. And the second benefit is you will earn interest on the money sitting in your car loan freedom fund. How exciting!

Remember that if your credit score needs some work, your income cannot handle a loan, or you have too much debt, there are alternatives to purchasing a new vehicle. For starters, you can purchase a “beater” car for a few thousand dollars. I’ve only driven beater cars and they have lasted me for up to 6 years each without major repairs.

You can use a combination of public transportation, car sharing, and car rentals. Peer-to-peer car rentals have made it a cheaper option to rent a vehicle for short-term needs. In the meantime, you can save up for a vehicle, and work on your credit score by paying down your current debt and making consistent, on-time monthly payments to each of your bills.

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