Credit scores have a lot of influence on your financial health — with a high one, you’ll pay less for auto insurance in most states, will have an easier time renting an apartment, and might even get hired for a job more easily. But if you struggle with your credit, you’ll be resigned to paying more for insurance and interest when you borrow money — say, to buy a car.
Can you buy a car with an auto loan if your credit score is just 500? Probably, but it’ll cost you more. Let’s take a closer look.
There may be a car loan for you, but it’ll be expensive
A credit score of 500 (which is in the “poor” range for FICO® Scores) indicates to lenders that you’ve had trouble managing borrowed money in the past. Perhaps you’ve defaulted on credit accounts, made payments months late, or are using most or all of your available credit. Whatever the reason, it’s likely to be harder for you to get approved for an auto loan — and it’ll cost you more.
According to data collected by U.S. News & World Report, the average auto loan rates for car buyers with a credit score of 500 are currently 14.54% for a new car and 14.79% for a used car.
What does this mean in real money? Let’s compare these rates with the current average rates available for car buyers with credit scores of 750 or higher. According to Edmunds, the average price for a new car was $47,542 in Q3 2024, while an average used car went for $21,177. Assuming a 10% down payment for each of those, here’s what you’d pay:
| Credit Score | Average Interest Rate for a New Car | Average Interest Rate for a Used Car | Expected Monthly Payment for Average New Car (60-month term) | Expected Monthly Payment for Average Used Car (36-month term) |
|---|---|---|---|---|
| 500 | 14.54% | 14.79% | $1,008 | $659 |
| 750 | 11.03% | 11.28% | $931 | $627 |
| Difference | 3.51% | 3.51% | $72 | $32 |
Data source: U.S. News & World Report; Edmunds; author’s calculations.
Comparing monthly payments to monthly payments, the difference isn’t terribly stark — but consider how much extra interest you’d pay overall for each vehicle with that higher rate: $4,320 more for a new car (total over 60 months) or $1,152 more for a used one (total over 36 months). That’s cash that could pad your emergency fund, pay down other debt, or just give you a little more breathing room in your budget every month.
It’s a better idea to boost your credit first, if you can
You might be able to finance a car with a credit score of 500 — but given the choice, wouldn’t you rather save money and hassle on the whole endeavor? It’s worth making some moves to improve your credit before applying for an auto loan, assuming it’s not an immediate emergency that you buy a car. Here’s how.
Build positive payment history
Payment history is the most significant factor in determining your credit score — it represents 35% of your FICO® Score, the one most commonly used by lenders. So building a record of making on-time payments should be the cornerstone of your credit-building efforts. Pay your creditors on time every month, and over time, you’ll see improvement.
Pay down debt
This is easier said than done, but the amount of money you owe constitutes 30% of your FICO® Score, so paying down what you owe can also have a huge impact. Personally, the best way I’ve found to pay off debt was to grow my income. Cutting your budget to the bone will quickly prove unsustainable (and contrary to what some finance gurus will tell you, life should still have some fun in it, even if you have debt).
If you can pick up more hours at work or a side hustle, everything you earn (less taxes) can go toward debt payoff.
Check your credit report for errors
Credit report errors are frighteningly common — in fact, Consumer Reports found that almost half of consumer complaints to the Consumer Financial Protection Bureau in 2023 were regarding credit report problems.
The good news is that if there are inaccuracies on your credit reports (like delinquent accounts that aren’t yours), you can petition the credit bureau that issued the report to remove them. Get free copies of your credit reports from AnnualCreditReport.com to start the process.
Consider a secured credit card
Finally, if you need to rebuild or build credit from scratch, a secured credit card can be a good way to do it. You put down a security deposit that becomes your credit limit, and as you spend and pay off the balance, the card issuer will report positive credit behavior to those credit bureaus. Click here for our picks for the best secured credit cards and start boosting your score today.
While there might be an auto loan out there for you with a 500 credit score, you’ll have an easier and cheaper time of buying a car if you focus on improving your credit first. Make the above moves and be patient — good credit takes time, but it’s worth it.
