How to get a car loan with bad credit Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial choices by providing you with financial calculators and tools that are interactive, publishing original and objective content, by enabling you to conduct research and compare data for free to help you make informed financial decisions. Bankrate has agreements with issuers such as, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The products that are featured on this website are provided by companies that compensate us. This compensation can affect the way and when products are featured on this site, including, for example, the order in which they may be listed within the categories of listing, except where prohibited by law. This applies to our mortgage, home equity and other home lending products. But this compensation does affect the content we publish or the reviews that you read on this site. We do not contain the entire universe of businesses or financial offerings that could be open to you. Anna Kraynova/Getty Images
6 min read Published March 02, 2023.
The writer is Hanneh Bareham. Written by student loans reporter Hanneh Bareham specializes in everything related to personal and student loans and can help you finance your next endeavor. She is determined to assist students achieve their college and financial goals through making loans more understandable. Written by Rhys Subitch Edited by Auto loans editor Rhys has written and edited for Bankrate from late 2021. They are passionate about helping readers gain confidence to control their finances by providing concise, well-studied information that breaks down complicated issues into digestible chunks. The Bankrate promises
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There are money-related questions. Bankrate has the answers. Our experts have helped you understand your finances for more than four decades. We are constantly striving to give our customers the right advice and tools required to make it through life’s financial journey. Bankrate adheres to strict standards policy, which means you can be confident that our content is honest and reliable. Our award-winning editors and reporters create honest and accurate information to assist you in making the right financial choices. The content we create by our editorial team is objective, truthful and uninfluenced from our advertising. We’re transparent about the ways we’re in a position to provide quality content, competitive rates, and helpful tools to our customers by revealing how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for the placement of sponsored products and services or by you clicking on certain hyperlinks on our site. So, this compensation can affect the way, location and in what order items are displayed within the categories of listing in the event that they are not permitted by law. We also offer mortgage home equity, mortgage and other home loan products. Other factors, like our own proprietary website rules and whether or not a product is available within the area you reside in or is within your own personal credit score could also affect how and where products appear on this website. We strive to provide the most diverse selection of products, Bankrate does not include information about every financial or credit products or services. If you have a low credit score, you may be concerned about whether you will be able to get an auto loan from an established lender. However, before you take out a loan via a buy-here, pay-here dealer take a look at all of your options. Even though having bad credit — a credit score of between 300-500 may make getting a loan more difficult, it’s not difficult. In addition, you’ll discover that the costs of borrowing are less with a bank, credit union or online lender regardless of your credit score. Steps to get a car loan for those with bad credit Prepare on several areas prior to starting the application process to get an automobile loan for those with bad credit. Take note of your credit score, and make certain that all terms are in place prior to the purchase. 1. Know your credit score Before you start shopping Check your credit score. According to the FICO credit scoring system that ranges from 300 to 850, any score that falls lower than 580 is considered to be poor. The FICO score can be determined on the basis of factors like how much you owe and the duration of your credit record and the history of your payments. Paying your bills punctually, spending more than your available monthly credit, and having a short credit history could all negatively impact the credit score. Bankrate tip
Before applying to get an auto loan make sure you do not open new credit cards or loans. Be sure to do this prior to when you start shopping puts you in a better standing with the lender.
2. Make a savings account for a down payment If you have a lower credit score, getting a car can increase your chances of securing and being accepted for an automobile loan. Setting aside some extra money each month to pay for a down payment can be a good way to offset more expensive interest rates due to poor credit scores and could lower your loan-to-value ratio, which can help you qualify for better terms. The experts recommend a down payment of at least 20 percent however, if that’s too much, you can pay what you can afford. There are dealers that work with credit-challenged customers will accept a down payment as low as $1,000. 3. Research Prepare as much as you can to avoid being surprised when it’s time to bargain. When you’re applying for a loan make sure you know the typical APRs for auto lenders. If you have the bad credit score, you’ll probably be offered the highest rates advertised. If you’re purchasing a used car it is also helpful to know the of your preferred car. 4. Shop around Once you begin the shopping process Don’t be limited to one lender. There are many lenders that can help you obtain a loan for your business, such as banks and credit unions: If already have an existing relationship with a bank or credit union, you can start by looking here. Some banks and credit unions offer discounted rates for members. Online lenders: A lot of online lenders offer a prequalification tool on their websites, which lets you know the terms you may be eligible for before applying. This could save you from an expensive credit test in case you don’t meet the criteria. Car dealerships: You are eligible apply for credit if you satisfy the credit and financial requirements. You’ll meet with a finance department representative, and they’ll send your information to different lenders. Certain dealerships might also offer programs for those with bad credit history. However, they typically mark up rates they offer in order to earn more money from the deal. Dealerships that buy-here or pay-here are a good option. Pay-here or Buy-here dealerships are a good option if you don’t get an approval from an institution or lender to get the loan, but be cautious. While these dealerships may be more likely to approve an applicant who has a credit card, the rates are often much higher. Bankrate tip
The lender will conduct an extensive credit test when you apply. It’s advisable to think about at least three lenders within a 14-day timeframe so your credit score doesn’t suffer multiple blows.
5. Prequalify with lenders through Prequalification allows you to determine whether you’re qualified for an loan prior to applying and view estimates of loan terms. Additionally, you’ll be able to save time in applications and avoid unnecessary credit checks, which can affect your credit score. After you’ve been prequalified by some lenders, you’ll need to provide documentation and get preapproved. This will lead to a formal credit assessment, but an auto loan is more important because it is a sign of the lender’s intention to extend the auto loan for you. Also, you’ll be able to leverage yourself in the car dealership and negotiate with them as cash buyers. 6. Check that the terms are final 6. Avoid subprime lenders Subprime lenders may appear to be a safe bet to anyone wondering how to obtain an auto loan with bad credit. They typically cater to people with low credit scores and make the car buying process seem effortless and easyinitially. But can come with sky-high interest rates and can mean paying thousands of dollars more on interest for the duration of the loan. Bankrate tip
Only consider subprime lenders if you cannot find an alternative financing source.
7. Shop loan terms, not monthly payments Lower monthly payments appear attractive on paper and are typically utilized to attract buyers. They can result in paying more for your vehicle throughout the duration of the loan because they . Since the car loans are available for bad credit have higher APRs they could result in paying thousands more than your car’s worth by the expiration of the loan due to the accumulation of interest. When shopping for a car, look for the most attractive terms — usually the lowest APR over the shortest period. So, you’ll have a more manageable monthly payment with reasonable interest rates. If you cannot find a low APR look into buying another vehicle. 8. Bring a friend with you and think about a co-signer Ask a friend or a relative to go with you, suggests Massachusetts-based consumer attorney Yvonne Rosmarin. A trusted friend or relative at the negotiation table can inspire confidence. In turn, confidence, coupled with knowledge, could lead to more favorable loan conditions. You might consider asking a relative or partner to be a . Ideally, the person should have a steady sources of earnings, good credit score and an exceptional credit background. Co-signers reduce much of the risk that lenders faceas the co-signer is accountable for the loan in the event of a default on your payments. The addition of a co-signer an advantage and typically results in an interest rate that is lower. 9. Watch out for add-ons or frauds. Nonprime buyers are more likely to encounter lending contracts with nonessential products and services, according to Josh Frank, former senior researcher at the Center for Responsible Lending. Other costs, such as that can add up for nonprime buyers. Don’t sign any loan which is contingent on , such as extended warranties, after-market services or . Pay attention to these add-ons particularly if you have to make an application at a buy-here, pay-here dealership or you plan to sell your car. And understand that rolling these costs into the loan is a way to pay more interest over the loan period. 10. Be sure the terms are in place if you finance via a dealer you must ensure the terms are final before you sign. If you don’t, you may be charged more monthly. Some shady dealers tell car buyers that their financing may not be complete well after the customer finalizes the purchase, and they must accept the higher rate of interest or return the car. This is called . Where can I find the bad credit car loan Car loans are available through most bank, credit unions, and online lenders. You can also use dealership financing, which is discussed in the previous paragraph. However, if you’ve got bad credit, you’re more likely to get a loan with reasonable terms through an online lender. Some credit unions will also allow you to get an bad credit car loan if you have a positive history with their institution. Take a look at Bankrate’s recommendations for the best to explore options. Bad credit car loan APRs Those with good or excellent credit score get the best affordable auto loan deals. However, that doesn’t mean you’ll have less options even if your credit score is less. However, your costs for borrowing will likely be much higher because of the risk you pose to the lender. Here’s a breakdown of the current interest rates for the average credit score from the fourth quarter of 2022: Credit score range
New car
Car used
Deep Subprime: 300 to 500
13.42%
20.62%
Subprime: 501 to 600
10.79%
17.46%
Near Prime: 601 to 660
8.12%
12.08%
Prime 661-780
5.82%
7.83%
Super Prime 781 to 850
4.75%
5.99%
The next step is to take if you have bad credit, it may be more difficult to secure a car loan. You may face lower interest rates or unfair lending practices. However, researching, saving for a downpayment and getting preapproved can help you prepare to get the best deal in an auto loan. If you that’s right for you, make timely payments to boost the credit rating. At that point, ; you could be able to get the loan with even more favorable terms. Learn more
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Written by Student loans reporter Hanneh Bareham specializes in everything that is related to student and personal loans and can assist you in financing your next venture. She aims to help others reach their collegiate and financial goals through making loans easier to understand. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are passionate about helping readers gain the confidence to control their finances by providing concise, well-researched, and well-researched content that breaks down complicated topics into digestible chunks.
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