620 Credit Score Car Loans: How to Lower Your Rate

A 620 credit score sits right on the edge of what many lenders consider "subprime" territory. While it’s not the worst score, it’s also not great—meaning you’ll likely face higher interest rates when applying for a car loan. In today’s economy, where inflation and rising interest rates dominate financial headlines, securing an affordable auto loan with a 620 credit score can feel like an uphill battle. But don’t lose hope. With the right strategies, you can lower your rate and drive off the lot without breaking the bank.

Why a 620 Credit Score Hurts Your Car Loan Rate

Lenders see borrowers with a 620 credit score as higher risk. This perception directly impacts the interest rate you’re offered. Here’s why:

The Risk-Based Pricing Model

Most lenders use risk-based pricing, meaning the higher the perceived risk, the higher the interest rate. A 620 FICO score suggests a history of late payments, high credit utilization, or even past defaults—all red flags for lenders.

Current Economic Factors

With the Federal Reserve raising interest rates to combat inflation, borrowing costs have surged across the board. Even prime borrowers are paying more than they would have two years ago. For someone with a 620 score, the difference is even starker.

How to Lower Your Car Loan Rate with a 620 Credit Score

While you can’t change macroeconomic conditions, you can take steps to improve your loan terms. Here’s how:

1. Improve Your Credit Before Applying

Even a small bump in your score can lead to better rates. Focus on:
- Paying down credit card balances (aim for under 30% utilization).
- Disputing errors on your credit report.
- Avoiding new credit applications before shopping for a car loan.

2. Shop Around for Lenders

Not all lenders treat a 620 score the same way. Explore:
- Credit unions, which often offer lower rates to members.
- Online lenders, who may have more flexible underwriting.
- Dealership financing, but be wary of marked-up rates.

3. Consider a Co-Signer

Adding a co-signer with strong credit can drastically improve your approval odds and lower your rate. Just remember: if you default, their credit takes a hit too.

4. Make a Larger Down Payment

A bigger down payment reduces the lender’s risk, which can translate to a lower interest rate. Aim for at least 20% if possible.

5. Opt for a Shorter Loan Term

Longer loans mean more interest paid over time. A 48-month loan will have a lower rate than a 72-month one, even with the same credit score.

The Impact of Rising Auto Prices on Financing

Car prices have skyrocketed due to supply chain disruptions and increased demand. For buyers with a 620 credit score, this creates a double whammy:
- Higher loan amounts mean more interest paid over time.
- Depreciation gaps can leave you underwater on your loan faster.

How to Combat High Car Prices

• Buy used—pre-owned cars are often more affordable and depreciate slower.
• Negotiate the price—don’t just focus on the monthly payment.
• Wait if possible—experts predict prices may stabilize in 2024.

Alternative Options If You Can’t Secure a Good Rate

If traditional lenders aren’t offering favorable terms, consider:
- Leasing (though mileage restrictions apply).
- Buy-here-pay-here dealerships (proceed with caution—rates are often predatory).
- Saving up to buy in cash (eliminates interest entirely).

The Future of Auto Loans for Subprime Borrowers

With fintech companies entering the lending space, there’s hope for more competitive rates for borrowers with 620 scores. Innovations like AI-driven underwriting and alternative credit scoring could make financing more accessible.

In the meantime, focus on what you can control: improving your credit, shopping smart, and avoiding loans that stretch your budget too thin. A 620 credit score doesn’t have to mean overpaying for your next car—it just means you need to be more strategic.