Are you ready to fall in love with your next car?

You may have already started looking at car reviews and figuring out your budget. If you plan to finance your next ride, keep in mind that the cost won’t just be the price you settle with the seller. It also will depend on the interest rate and fees you pay. Learning now about what factors influence the interest rates available to you may just save you money later.

How Your Rate Is Determined

Not everyone qualifies for the same interest rate on a car loan. The rate you’ll be offered depends on several things.

The #1 Factor

What influences your auto loan’s interest rate the most is your credit score. And, although not all the credit bureaus rate scores in exactly the same way, they follow similar rules. Experian®, for example, rates scores using 2 types of measures commonly used by lenders:
 

FICO® RANGE VANTAGESCORE® RANGE RATING
300 - 579 300 - 549 Very Poor
  550 - 649 Poor
580 - 669 650 - 699 Fair
670 - 739 700 - 749 Good 
740 - 799   Very Good
800 - 850 750 - 850 Exceptional

Source: Experian

What Does That Mean for You?

In general, it means that although different lenders use different measures, people with exceptional credit scores are usually offered the lowest rates, while people with lower credit scores will qualify only for loans with higher rates. 

High Credit Score = Low Interest Rate
Lower Credit Score = Higher Interest Rate

Other Factors

  • The size of your loan and down payment. Borrow less or make a large down payment, and you’re more likely to get a lower rate. 
  • The length of the loan. Shorter term loans usually have lower interest rates. 
  • The age of the car. Typically, the newer the car, the lower the interest rate.

Is There a Magic Number?

By now, you may be wondering if you need a specific credit score to buy a car. Although there’s no magic number that’s standard among all lenders, they do use credit scores as guidelines to determine who qualifies for what rates.

If you’re not sure where you stand, order a copy of your credit report 3 to 6 months before applying for an auto loan. That way, if you need to improve your credit, you’ll have time to do it. You can get 1 free report every 12 months.*

Tips for Improving Credit

  • Check your report for mistakes. After ordering your credit report, review the information for any mistakes that could be lowering your score and contact the reporting agency to have the information corrected. 
  • Pay your bills on time—always. Lenders want to know that you’ll pay back what you’ve borrowed, so showing that you can make on-time payments over time will help your creditworthiness. Even if you’ve already missed payments, making consistent payments from now on (and catching up if you can) will help your score recover over time. 
  • Pay off your small accounts. Do you have any accounts with small balances? It’s best to pay those off if you have multiple accounts, because credit bureaus may dock your score for having too many accounts with outstanding balances.**
  • Be strategic about applying for new loans or credit cards. Your credit score may be dinged if the average age of your accounts is too young or you carry high balances. However, if you have almost no credit history, it may be wise to open a credit card now so you can start building a history of timely payments.
  • Be patient. You’ll need more than a few months to improve your credit. Be aware that if your credit score is low due to multiple missed payments or similar circumstances, it can take more time to rebuild. If this is your situation, you may still qualify for an auto loan from Navy Federal Credit Union. We’ll consider your relationship with our credit union as a whole in addition to your credit score—you’re not just a number here!

Did you know that credit unions’ auto loan rates tend to be 17 percent lower than the industry average? If you’re ready for an auto loan, Navy Federal Credit Union can help. Learn more about our auto loan options for new and used vehicles.

*You can order reports from all three credit reporting companies (Experian, Equifax® and TransUnion®) or order one at a time.
**Source: myFICO, “How to repair my credit and improve my FICO Scores.”