About a third of Americans (31.8%) think they'd be rejected for a car loan, according to a Februarysurvey from the New York Fed's Center for Microeconomic Data, the highest rate since the center began polling consumer expectations in 2013.
Some of that may be perception: Rejection rates for auto loans actually dropped about 9 percentage points from October 2023. Weaker candidates may be holding off, however, as application rates also decreased 3.7 percentage points.
Car prices are still elevated but declining according to theCox Automotive/Moody's Analytics Vehicle Affordability Index, which found monthly car payments averaged $744 in February 2024.
That's down from $749 in January 2024 and a high of $795 in December 2022.
The good news in all of this is that, if you need a car loan, there are ways to improve your odds of approval.
Getting approved for a car loan
- Shop for the right car loan
- Increase your down payment
- Improve your credit
- Get a co-signer
- FAQ
- Bottom line
Find the best auto loan for you
Shop for the right lender
You typically need a credit score of 670 or better to qualify for a car loan but there are lenders that work with borrowers who have bad credit: The car-loan marketplace MyAutoloan allows shoppers to compare loan terms and rates, with options for those with FICO scores as low as 575.
It also offers refinancing options and lease buyout loans.
MyAutoLoan
Annual Percentage Rate (APR)
Starting at 5.49%
Loan purpose
New vehicles, used vehicles, refinancing, private party and lease buyout
Loan amounts
Starting at $8,000 (or $5,000 for refinancing)
Terms
24 to 72 months
Credit needed
FICO score of 575 or greater
Early payoff penalty
None
Late fee
Varies by lender
Terms apply.
Capital One Auto Finance offers prequalification without a credit check, so your credit score won't take a hit from a hard inquiry. Borrowers can take advantage of the lower rates available from a large national bank, with a minimum loan amount of $4,000 and terms ranging from less than 12 months to 84 months.
Capital One's Auto Navigator tool allows applicants to both shop for financing and look for new and used cars at more than 12,000 participating dealerships
Capital One Auto Finance
Annual Percentage Rate (APR)
Depends on credit profile
Loan purpose
New vehicles, used vehicles, refinancing
Loan amounts
Starting at $4,000
Terms
36 to 72 months
Credit needed
Not specified
Early payoff penalty
None
Late fee
Depends on the lender
Terms apply.
Increase your down payment
Paying more up front lowers your payments and the time it'll take to pay off your loan. (Since your loan-to-value ratio is reduced, it may also get you a lower interest rate.) Every situation is different, but for every $1,000 you put down, your monthly payment will drop about$20 a month, based on a 5% APR.
If you want to save up for a heftier down payment, a high-yield savings account can get you there faster. With a robust 5.0% APY, LendingClub's HYSA is one of CNBC Select's top picks in the category. You can make unlimited withdrawals without a penalty and, if you open an account with at least $100, there's no minimum balance requirement.
LendingClub High-Yield Savings
LendingClub Bank, N.A., Member FDIC
Annual Percentage Yield (APY)
5.00%
Minimum balance
No minimum balance requirement after $100.00 to open the account
Monthly fee
None
Maximum transactions
None
Excessive transactions fee
None
Overdraft fees
N/A
Offer checking account?
Yes
Offer ATM card?
Yes
Terms apply.
Improve your credit
If your credit score is below 670, it could be hard to approved for a traditional car loan. If you can wait to buy a car for a few months, work on raising your score. Focus on making on-time payments in full on revolving debt like credit cards.
You can also ask your card issuer to raise your credit limit: if you leave that extra credit untouched, it will lower your credit utilization ratio.
And it's always good practice to review your credit reports from all three reporting agencies for errors that may be lowering your score.
Phone, utility and subscription payments aren't usually sent to credit reporting agencies, but *Experian Boost™ is free service that connects them to your Experian report. Only positive on-time payments are sent, so any slip-ups won't hurt your credit.
Experian Boost™
On Experian's secure site
Cost
Free
Average credit score increase
13 points, though results vary
Credit report affected
Experian®
Credit scoring model used
FICO® Score
Results will vary. See website for details.
How to sign up for Experian Boost:
- Connect the bank account(s) you use to pay your bills
- Choose and verify the positive payment data you want added to your Experian credit file
- Receive an updatedFICO® Score
Learn more about eligible payments and how Experian Boost works.
While your income isn't reported to credit agencies, lenders will also look at your debt-to-income ratio (DTI), which is the amount of debt you're carrying each month — including rent or mortgage payments, credit card bills and student loans— divided by your gross monthly income. In general, lenders like to see that you're spending no more than 35% of your income on paying off debts.
A debt-consolidation loan with a lower interest rate than you're currently paying can shring your DTI and make you a more attractive candidate for a car loan. Achieveoffers flexible terms and payment dates for its debt consolidation loans and you can qualify for approval with a credit score of 620.
A low score may translate into a higher interest rate, however, so be sure to look at your finances to see if you come out ahead.
Achieve® Personal Loans
Annual Percentage Rate (APR)
8.99% to 35.99%
Loan purpose
Debt consolidation, major purchase
Loan amounts
$5,000 to $50,000
Terms
24 and 60 months
Credit needed
620 or higher
Origination fee
1.99% to 6.99%
Early payoff penalty
None
Late fee
See terms
Terms apply.
Get a co-signer
If you have bad credit or not much of a credit history, a co-applicant with good credit can greatly increase your chances of approval.
Anyone you ask to co-sign a loan should understand it will show up on their credit report and that they will be financially responsible if you are unable to make payments.
FAQs
What credit score do I need to get a car loan?
While each loan is different, lenders generally look for borrowers with good credit, 670 or better, to approve car loans. There are lenders who accept lower scores and a co-signer with good credit can help get approved.
Can you refinance a car loan?
Yes, just like a mortgage, you can refinance your car loan. If you're close to paying off your loan or you owe more than the car is worth, it may be hard to secure refinancing.
What is the interest rate on a car loan?
The interest you'll pay on a car loan depends on your credit score and whether it is a new or used car. According toExperian , the average auto loan interest rate in the last quarter of 2023 was 7.03% for new cars and 11.35% for used cars.
Find a personal loan that works for you
Bottom line
Higher interest ratesand car prices have been driving up rejection rates for auto loans. But there are steps you can take that will boost your odds of getting approved.
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Read more
The best auto loans for flexible terms and low rates
4 essential tips for consolidating your debt
How to refinance a car loan in 5 easy steps
Should you buy or lease a car? Here's how to decide
*Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
