Edmunds.com states that an excellent-credit borrower is defined by a credit score of 720 or more, while poor credit borrowers have a credit score of 620 or less. A borrower's credit score alone does not ensure a loan approval or decline. Before you apply for a car loan, consider which other credit information lenders use to determine a loan approval.
Credit Score
Some auto loan providers may approve loans based on credit score alone. Most lenders, however, use a combination of credit and personal information to ultimately determine a loan approval. Be sure to check your credit score with all three credit bureaus. Not all accounts are reported to each major bureau, so you may have a higher score with one bureau than others. Some lenders may use a median score from all three bureaus.
Payment History
Auto loan providers review borrower credit and payment history thoroughly. Even with a high credit score, you can still have credit issues caused by late payments that aren't accounted for in your scoring. Additionally, a low credit score does not automatically warrant the decline of your application. All accounts should be current, meaning you aren't past due on any payments for any of your accounts. Even if previously past-due accounts are now current, potential lenders may not penalize you for getting behind in payments at some point.
Debt-to-Income Ratio
Most lenders determine loan approvals based on a borrower's debt-to-income ratio, which does not include your credit score. Expect to provide your lender with a copy of your most recent pay stub, which lists your year-to-date income. The lender determines the costs of your monthly debts by reviewing the information on your credit report and credit application, which lists your monthly mortgage or rental payment. Even poor credit customers can obtain a loan with a decent debt-to-income ratio. Someone with a good credit score and insufficient income may not obtain a loan approval.
Loan-to-Value
Lenders also use a borrower's loan-to-value ratio to determine a maximum loan amount. Based on credit score, payment history and the vehicle's bank-determined market value, a borrower may obtain an approval for 60 to 120 percent of the car's value. Depending on your loan-to-value ratio, you might need to provide a down payment. Even with an excellent credit score, you cannot borrow $20,000 for a vehicle worth only $12,000. For poor credit consumers, you may obtain a loan despite a low credit score but may have to provide a large down payment.
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