How to get a car loan with bad credit Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make better financial decisions by offering interactive tools and financial calculators that provide objective and original content. We also allow users to conduct studies and compare data for free to help you make informed financial decisions. Bankrate has agreements with issuers including, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Profit The offers that appear on this site come from companies who pay us. This compensation could affect how and when products are featured on the site, such as such things as the order in which they appear in the listing categories and other categories, unless prohibited by law. Our mortgage home equity, mortgage and other products for home loans. However, this compensation will affect the information we provide, or the reviews that you read on this site. We do not include the vast array of companies or financial deals that might be available to you. Anna Kraynova/Getty Images
6 min read . Published March 02, 2023
The writer is Hanneh Bareham. Written student loans reporter Hanneh Bareham specializes in everything connected to student and personal loans and can help you fund your next venture. She is determined to assist people achieve their collegiate and financial goals through making loans easier to understand. Written by Rhys Subitch Edited by Auto loans editor Rhys has written and edited for Bankrate since late 2021. They are committed to helping readers gain confidence to control their finances with concise, well-studied information that breaks down complicated topics into manageable bites. The Bankrate promise
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At Bankrate we strive to help you make better financial decisions. While we adhere to strict editorial integrity ,
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In 1976, Bankrate was founded. Bankrate has a long experience of helping customers make wise financial decisions.
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They ensure that what we write ensures that everything we publish is accurate, objective and reliable. The loans journalists and editors are focused on the things that consumers are interested about most — the various types of loans available as well as the best rates, the most reliable lenders, the best ways to repay debt, and many more. So you’ll be able to feel secure when making a decision about your investment. Integrity of the editing
Bankrate adheres to a strict code of conduct , so you can trust that we’ll put your needs first. Our award-winning editors and journalists provide honest and trustworthy information to assist you in making the right financial decisions. Key Principles We appreciate your trust. Our goal is to provide our readers with accurate and unbiased information. We have standards for editorial content in place to ensure that this happens. Our editors and reporters rigorously fact-check editorial content to ensure the information you’re receiving is correct. We have a strict separation between advertisers as well as our editorial staff. Our editorial team doesn’t receive any direct payment by our advertising partners. Editorial Independence Bankrate’s team of editors writes for YOU – the reader. Our goal is to give you the most relevant information to assist you in making intelligent financial decisions for your personal finances. We follow strict guidelines to ensure that our editorial content is not affected by advertisements. Our editorial team receives no any compensation directly from advertisers and our content is thoroughly fact-checked to ensure accuracy. Therefore, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. How we make money
There are money-related questions. Bankrate has the answers. Our experts have been helping you master your money for over four decades. We continually strive to provide our readers with the professional guidance and the tools necessary to be successful throughout their financial journey. Bankrate adheres to strict standards standard of conduct, so you can rest assured that our content is truthful and reliable. Our award-winning editors and reporters create honest and accurate content that will help you make the best financial decisions. Our content produced by our editorial team is objective, truthful, and not influenced by our advertisers. We’re honest about the ways we’re in a position to provide quality information, competitive rates and useful tools to you by explaining how we earn 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 specific links on our site. This compensation could affect the way, location and in what order products are listed and categories, unless it is prohibited by law. This is the case for our mortgage, home equity and other home loan products. Other elements, such as our own website rules and whether the product is available within your region or within your own personal credit score could also affect how and where products appear on this website. While we strive to provide an array of offers, Bankrate does not include specific information on every credit or financial product or service. If you’re a person with a low credit score, you might be concerned about whether you will be approved for an auto loan from an established lender. However, before you take out a loan through a dealer who buys-here-pay-here, consider researching all the alternatives. While having bad credit — a credit score of between 300 and 500 — can make getting a more challenging, it isn’t difficult. Additionally, you’ll notice that the cost of borrowing is much less with a bank, credit union or online lender regardless of your credit score. How to apply for an auto loan for those with bad credit Prepare on several areas prior to starting the process of applying for an auto loan with bad credit. Pay special attention to your credit score and make sure all terms are finalized prior to the purchase. 1. Know your credit score Before you begin the shopping process Check your credit score. According to the FICO credit scoring system which can range from 300-850 scores, any score lower than 580 is considered to be poor. The FICO score is calculated on the basis of factors like how much you owe, the length of your credit record, and your payment history. Inability to pay punctually, using more credit than you have available monthly credit, and having a short credit history can all affect the credit score. Bankrate tip
Before making an application for an auto loan, avoid opening any new credit card or loans. Making efforts to before you begin shopping can put you in a better position with the lender.
2. Make a savings account for a down payment If you’re not able to pay a down payment credit score, an automobile can boost your odds of getting approved for the auto loan. Making a small amount of cash every month for a down payment can be a good way to offset higher interest rates caused by poor credit scores and could lower your loan-to-value ratio, helping you get more favorable terms. Experts recommend a down payment of at least 20 however, if that’s too much, you can pay what you can afford. It is possible that dealers who deal with credit-challenged clients will allow as little as $1,000. 3. Research as thoroughly as you can so that you don’t get caught off guard when it’s time to bargain. When you’re applying for a loan, know what and the typical APRs for auto lenders. With a bad credit score, you’ll probably be offered the highest advertised rates. If you’re purchasing used it is also helpful to understand the features of your preferred car. 4. Explore the options once you have started the shopping process, don’t limit yourself to one lender. There are numerous lenders that can assist you to get the loan that include: Banks or credit unions you already have a relationship with a bank or credit union start here. Certain credit unions and banks offer members discounts on rates. Online lenders: A lot of online lenders offer an application tool for prequalification on their sites, which lets you know the terms you may be eligible for prior to applying. This can save you the hassle of a credit check in case you don’t meet the criteria. Car dealerships: You are eligible apply for credit if you have the required financial and credit criteria. You’ll meet with an official from the finance department and they’ll forward your information to different lenders. Certain dealerships might also offer programs for those with bad credit history. But, dealers typically mark up rates they offer to make more money from the deal. Pay-here and buy-here dealers: Buy-here, pay-here dealerships are useful when you aren’t accepted by a bank or lender for a loan, but be cautious. While these types of dealerships are most likely to grant approval to someone with this type of loan, the interest rates are often much higher. Bankrate tip
The lender will conduct an examination of your credit when you apply. It’s advisable to think about at least three lenders over a period of 14 days to ensure that your credit score doesn’t suffer multiple blows.
5. Prequalify with lenders Prequalification allows you to determine if you’re eligible to receive the loan prior to submitting an application and also view estimated loan terms. Additionally, you’ll be able to save time when applying and avoid unnecessary hard credit checks that can affect your score on credit. Once you’re pre-qualified with some lenders, you’ll need to provide documents and be preapproved. This will result in a strict credit assessment, but a loan is more important because it demonstrates the lender’s willingness to extend an automobile loan towards you. Additionally, you’ll have leverage when walking into the dealership, and you can negotiate as the cash buyer. 6. Make sure that the terms are final. Avoid subprime lenders Subprime lenders can seem like a good option for anyone who is trying to secure a car loan that has bad credit. These lenders usually cater to customers with lower credit scores, and they can make the car purchasing process seem easy and stress-free — at first. But they may come with astronomically high rates of interest, and can result in paying thousands of dollars more on interest for the duration of the loan. Bankrate tip
Consider subprime lenders only in the event that you do not have another option for financing.
7. The terms of the shop loan terms do not include monthly payments. monthly payments appear attractive on paper and are usually utilized to attract buyers. They could result in you having to pay more money for the vehicle over the course of the loan due to the fact that they . Because car loans specifically designed for bad credit have higher APRs, you may end up paying thousands more than the car’s worth by the end of the loan due to the accumulation of interest. When you’re shopping for a loan, you should look for the most attractive conditions — typically with the lowest interest rate over the shortest period. So, you’ll be able to make more affordable monthly payments with fair interest rates. If you cannot locate a lower APR, consider shopping for an alternative vehicle. 8. Bring a companion along — and consider a co-signer Ask someone you know or a family member to accompany you, says Massachusetts-based consumer attorney Yvonne Rosmarin. Bring someone you trust to the negotiating table can help to build confidence. In turn, confidence, coupled with knowledge, can help you negotiate better loan terms. You might consider asking a relative or partner to become a . Ideally, the person you choose to co-sign with must have a stable earnings source, high credit score, and a stellar credit background. Co-signers reduce much of the risk that lenders facesince the co-signer will be responsible for the loan in the event of a default on your repayments. The addition of a co-signer the result of a lower interest rate. 9. Watch out for add-ons or scams . Buyers who are not prime are more likely to come across loans that do not include essential products and services, according to Josh Frank, former senior researcher for the Center for Responsible Lending. Other costs, such as that can add up for buyers who are not prime. Do not sign up for an loan that’s contingent on , such as extended warranties, after-market service or . Be aware of these additional charges, especially if you need to make an application at an auto dealer that offers buy-here or pay-here or plan to sell your car. Also, remember that incorporating these charges into your loan is a way to pay more interest during the loan term. 10. Check that the terms are in place if you are financing with a broker, always ensure the terms are final before you sign. If you don’t do this, you could be charged more monthly. Certain dealers that are scams tell buyers that financing isn’t fully completed until after the buyer completes the purchase. They then inform the buyer that they are required to pay an interest rate that is higher or sell the vehicle. This is called . Where to find a 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. If you’re a person with bad credit, you’re more likely to obtain a loan that has reasonable terms with an online lender. Some credit unions will also allow you to get an bad credit car loan if you have a good history with their institution. Check out Bankrate’s picks for the most suitable options to research. Cars with bad credit loan APRs Those with excellent or good credit scores get the most affordable auto loan offers. This doesn’t mean that you’ll have fewer options even if your credit score is less. However, your costs for borrowing are likely to be higher because of the risk you present to the lender. Here’s a breakdown on the most current average interest rates based on credit score from the fourth quarter of 2022 Credit score range
New car
Used car
Deep Subprime 300-500 500
13.42%
20.62%
Subprime: 501-600
10.79%
17.46%
Near Prime: 601 to 600
8.12%
12.08%
Prime 661 to 780
5.82%
7.83%
Super Prime: 781 to 850
4.75%
5.99%
Next steps If you have bad credit, it may be tougher for you to obtain an auto loan. You could face less favorable terms or even unfair lending practices. It’s good to know that researching, saving to pay for a down payment, and getting preapproved help you prepare to get the best price on an auto loan. If it’s the right choice for you, make timely payments to help boost your score on credit. At that point, ; you could be able to get a loan with even more favorable conditions. Find out more
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Written by Student loans reporter Hanneh Bareham specializes in everything connected to student and personal loans and can help you finance your next project. She aims to help people achieve their collegiate and financial goals by making loans more understandable. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are dedicated to helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down complicated topics into digestible chunks.
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