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Auto Loans with 640 Credit Score: What to Know

A 640 credit score is generally termed “subprime.” This generally encompasses credit scores from 620-680, with lower scores dubbed “bad credit” and higher scores “prime.”

During the recession that ended in 2012, getting an auto loan with a 640 credit score would have been nearly impossible. Fast forward to 2015 and lenders have loosened their lending standards to reflect a stable economy. Now, getting a loan with a 640 credit score is fairly easy, with a large number of lender options available to the average consumer. Let’s have a look at where to look, how to prepare for the loan, and how much it may cost you.

Where to Get an Auto Loan with a 640 Credit Score?

Despite looser lending guidelines across the industry, large national banks are generally not on-board with offering loans to average credit scores. The first place you can look is a local credit union or finance company. Both have looser guidelines than your local bank will have. With a credit union, you will have to become a member before you can apply for a loan.

Local finance companies are usually small lenders with just a handful of offices. They may or may not require a savings account with their institution. Their lending guidelines are a bit looser than a credit union’s may be, but they will charge a higher interest rate than a credit union.

If you are denied by the first two options, you can still get a car loan without having to work with a buy-here-pay-here lot. You can turn to the internet. You have multiple options online. The first is to turn to broker sites like us where your loan application is submitted to multiple online banking options until it is approved. Your third option is to find an online specialty lender. These lenders are essentially finance companies that have a single office, but offer loans to any applicant regardless of where they reside, some even have partner dealerships in your area.

How To Prepare?

Every lender who offers auto loans will need the same paperwork and proofs. These include proof of income, residence, and insurance among others. Paperwork aside, you can prepare your credit score for the most favorable terms possible.

The first step you should take before applying for an auto loan, any loan really, is to visit www.annualcreditreport.com to request a copy of your credit report. You need to do this at least three months before applying for a car loan whenever possible. Look for errors or old accounts that you have forgotten to pay. If possible, correct the errors and pay off the accounts.

Auto loan approval often hinges on your debt-to-income ratio, or DTI. Many lenders balk at a DTI that is higher than 35 percent of your gross monthly income. You can see what yours is by totaling all of your recurring monthly payments, including the amount you think you will be paying for this car loan, and dividing that number by your pre-tax monthly income. If your DTI is too high, look for a bill that you can pay off or a credit card that you can pay down. Paying down a credit card is the best option because your credit score will improve as the balance dwindles.

How Much It Will Cost?

Th good news is that you can get an auto loan with a 640 credit score. The bad news is that it will come at a price. The first hit to your wallet will be the down payment. You are going to need 10-15 percent of the total purchase price of your new vehicle as a down payment. At 640, that may be in a combination of cash and trade, but some lenders may request that you offer at least $1,000 in cash on top of any trade.

Auto Loan Rates for 640 Credit Score

The second hit will be the interest rate. The prime interest rate…the low rate you see advertised on t.v… is reserved for borrowers with excellent credit. Borrowers who have a score of 640 are going to have to pay more. At the time of this writing, the prime rate according is just 1.99 percent. With a score of 640 you can expect to pay between five and eight points more, so your interest rate could range between 6.99 and 9.99 percent depending on the lender and how long your loan term is.

Below you can see costs for a $25,000 vehicle financed at a various interest rates and terms.

Price Rate Term Monthly Payment Total Interest
$25,000 6.99% APR 48 $599 $3,730
$25,000 6.99% APR 60 $495 $4,695
$25,000 9.99% APR 48 $634 $5,429
$25,000 9.99% APR 60 $531 $6,863

At 640 you will only qualify for limited loan terms, making your payments higher than you may be comfortable with. With an average credit score, you can expect your loan term to be between 36 and 60 months. The exact term will depend on the lender and the price and age of the vehicle among others.

We want to wish you luck while looking for a new auto loan.

About the Author

The author has many years of experience in automotive finance and insurance. However, each consumer's situation is unique. It is best to contact a finance specialist for further assistance.
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