7 mins read 
Key takeaways
- Your credit score helps determine the APR lenders offer on a car loan.
- Higher scores usually mean lower monthly payments and less total interest.
- Lower scores can also affect approval odds, down payment requirements and loan options.
- Improving your credit can help before you buy a car — or after, through refinancing.
Your credit score can affect far more than whether you qualify for a car loan. It can also shape your interest rate, your monthly payment and the total amount you’ll pay over the life of the loan.
That’s why National Credit Education Month is a good time to look closely at your credit. A stronger score can help you qualify for a lower APR and save money each month. A lower score can make the same car much more expensive to finance.
Even a relatively small rate difference can add up fast. On a $30,000 auto loan with a 60-month term, the gap between a super-prime rate and a subprime rate can mean paying about $124 more per month and more than $7,400 more in total interest.
If your credit has improved since you first got your loan, you may not have to wait until your next car purchase to benefit. Refinancing could help you lower your rate and reduce your monthly payment now.
What is a credit score, and why does it matter for a car loan?
A credit score is a three-digit number lenders use to measure how risky it may be to lend you money. In most cases, FICO scores range from 300 to 850. The higher your score, the more likely lenders are to see you as a lower-risk borrower.
For car buyers, that matters because lenders often group borrowers into credit tiers. Those tiers help determine the interest rate on a loan. Higher scores tend to qualify for lower rates. Lower scores usually come with higher borrowing costs.
Several factors influence your score, including:
- payment history
- amounts owed, also called credit utilization
- length of credit history
- credit mix
- new credit inquiries
Auto lenders may use standard FICO scores, VantageScore or industry-specific scoring models. But the basic idea stays the same: stronger credit usually leads to better financing terms.
How does your credit score affect your car payment?
Your credit score affects your car payment by influencing the APR a lender offers you. The better your credit, the lower your interest rate is likely to be. The lower your rate, the lower your monthly payment can be.
Here’s how average auto refinance APRs break down by credit tier.
BEST AVAILABLE RATES1
The best rates currently offered per credit tier and term length through Caribou’s lending network. These rates are based on many factors beyond the credit score.**
| CREDIT TIER | 24 MONTHS | 36 MONTHS | 48 MONTHS | 60 MONTHS | 72 MONTHS | 84 MONTHS |
|---|---|---|---|---|---|---|
| 800+ | 4.39 | 4.24 | 4.99 | 5.19 | 5.19 | 5.99 |
| 780-799 | 4.39 | 4.39 | 4.99 | 5.19 | 5.29 | 5.99 |
| 760-779 | 4.39 | 4.39 | 4.99 | 5.25 | 5.50 | 5.99 |
| 740-759 | 4.39 | 4.39 | 4.99 | 5.25 | 5.50 | 6.25 |
| 720-739 | 4.39 | 4.39 | 4.99 | 5.25 | 5.49 | 6.25 |
| 700-719 | 4.64 | 4.64 | 5.24 | 5.25 | 5.75 | 6.50 |
| 680-699 | 4.64 | 4.64 | 5.24 | 5.50 | 5.75 | 6.50 |
| 660-679 | 6.24 | 6.24 | 6.49 | 6.53 | 6.49 | 7.21 |
| 640-659 | 6.99 | 6.49 | 6.49 | 6.79 | 6.99 | 7.29 |
| 620-639 | 10.05 | 9.64 | 9.43 | 9.30 | 9.72 | 11.20 |
| 600-619 | 10.20 | 10.20 | 9.80 | 9.50 | 10.19 | 11.20 |
| 580-599 | 10.20 | 10.20 | 10.20 | 10.20 | 10.20 | 11.20 |
1 The lowest available APR from our lenders today (not guaranteed).
APRs are based on the minimum prequalified rates through caribou.com over the last day. The lowest rates displayed may not be available in all states. Your actual APR may be different. **
What that difference looks like in real dollars
Say you borrow $30,000 for 60 months.
At 4.88% APR, your monthly payment would be about $564, and you’d pay about $3,869 in total interest.
At 13.34% APR, your monthly payment would be about $688, and you’d pay about $11,270 in total interest.
That’s a difference of about $124 a month and more than $7,400 over the life of the loan.
In other words, your credit score can change the cost of the same car by thousands of dollars.
Your credit score affects more than just your rate
A lower credit score doesn’t just mean a higher APR. It can change several parts of the car-buying process.
Loan approval odds
Borrowers with lower scores may have a harder time getting approved. Some lenders may decline the application outright or require a co-signer.
Down payment requirements
A lower score may mean you need to put more money down. That reduces the lender’s risk and can improve your approval odds.
Loan term options
Some lenders may limit longer repayment terms for borrowers with weaker credit. Others may place restrictions on the age or mileage of the vehicle.
Loan-to-value limits
Lenders compare how much you want to borrow with what the vehicle is worth. Lower-credit borrowers may face tighter loan-to-value caps.
Insurance costs
In many states, credit-related factors can also affect car insurance premiums. That means lower credit can raise the total cost of owning a car, not just financing it.
How to improve your credit score before getting a car loan
If you’re planning to buy a car soon, improving your credit first could help you qualify for better loan terms.
1. Check your credit reports for errors
Review your credit reports and look for mistakes that could be dragging down your score. Incorrect late payments, balances or account details can cost you money if they go uncorrected.
2. Pay every bill on time
Payment history is one of the biggest factors in your credit score. Setting up autopay or payment reminders can help you avoid missed due dates.
3. Lower your credit utilization
Paying down credit card balances can improve your score, especially if your utilization is high. Keeping utilization below 30% is a common benchmark, though lower is generally better.
4. Avoid opening new credit right before applying
Applying for several new accounts in a short period can temporarily hurt your score. If you’re planning to finance a car soon, it may help to hold off on opening new credit cards or loans.
5. Keep older accounts open
Length of credit history matters. Closing older accounts can reduce the average age of your credit profile and work against you.
Already have a car loan? Refinancing could help
If your credit score has improved since you first financed your car, refinancing may be worth a look.
Auto refinancing means replacing your current loan with a new one, ideally with better terms. That could help you:
- lower your interest rate
- reduce your monthly payment
- pay less interest overall
- Change your loan term
When refinancing may make sense
Refinancing could be a smart move if:
- your credit score is better than it was when you got your loan
- interest rates have dropped since you financed the car
- you want a lower monthly payment
- you want to pay the car off faster
Will refinancing hurt your credit?
Refinancing can cause a small, temporary dip in your credit score if a lender performs a hard inquiry. But many lenders offer soft-pull prequalification, which lets you check potential rates without affecting your score.
That makes it easier to compare options before deciding whether to move forward.
Bottom line
Credit isn’t fixed. It can improve over time, and when it does, the payoff can show up in a very practical place: your monthly car payment.
March is a good time to take three simple steps:
- Check your credit reports for errors.
- See where your score falls among common auto loan credit tiers.
- Review your current car loan to find out whether you may qualify for a better rate.
A better credit score can mean lower borrowing costs, more flexibility and more room in your budget every month.
FAQs: How your credit score affects your car payment
What credit score do I need to get a good car loan rate?
In general, borrowers with scores of 661 or higher are more likely to qualify for competitive rates. The best rates usually go to super-prime borrowers with scores from 781 to 850.
How much does your credit score affect your monthly car payment?
It can make a big difference. On a $30,000 loan over 60 months, the gap between a super-prime APR and a subprime APR can mean paying about $124 more each month.
Can improving your credit lower your car payment?
Yes. Improving your credit may help you qualify for a lower rate on a new car loan or refinance an existing loan into one with a lower monthly payment.
Does refinancing a car hurt your credit score?
Usually only slightly. A hard credit inquiry may cause a small temporary drop, but many lenders let you check rates with a soft inquiry first.
