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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 interactive tools as well as publishing original and impartial content. We also allow you to conduct research and compare information at no cost and help you make financial decisions with confidence. Bankrate has partnerships 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 site come from companies that pay us. This compensation may impact how and when products appear on this site, including, for example, the order in which they may appear in the listing categories in the event that they are not permitted by law for our mortgage, home equity and other home lending products. However, this compensation will not influence the information we provide, or the reviews that appear on this website. We do not contain the universe of companies or financial offerings that could be available to you. Anna Kraynova/Getty Images

6 min read . Published March 02, 2023

written by Hanneh Bareham. Written Student loans reporter Hanneh Bareham is an expert in all matters related to personal and student loans and helping you fund your next venture. She aims to help people achieve their collegiate and financial goals by making loans more understandable. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are committed to helping readers gain the confidence to manage their finances through providing precise, well-studied and well-researched data that breaks down otherwise complex subjects into bite-sized pieces. The Bankrate guarantee

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who ensure everything we publish ensures that everything we publish is accurate, objective and reliable. The loans reporters and editors are focused on the things that consumers are interested about the most — the various types of loans available, the best rates, the top lenders, ways to repay debt, and more — so you’ll feel safe investing your money. Integrity of the editing

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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We are constantly striving to provide our readers with the professional advice and tools required to be successful throughout their financial journey. Bankrate follows a strict policy, which means you can be confident that our content is truthful and accurate. Our award-winning editors and reporters produce honest and reliable content to help you make the best financial decisions. The content we create by our editorial team is objective, truthful and is not influenced by our advertisers. We’re open about the ways we’re in a position to provide quality content, competitive rates and useful tools to you , by describing how we earn money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and services or through you clicking certain links posted on our website. This compensation could impact how, where and in what order items are listed, except where prohibited by law. This is the case for our mortgage, home equity and other home lending products. Other elements, such as our own website rules and whether or not a product is available within your area or at your own personal credit score could also affect the manner in which products appear on this site. Although we try to offer a wide range offers, Bankrate does not include details about each credit or financial item or product. If you have a low credit score, you might be worried that you won’t get approved for an auto loan from a traditional lender. But before settling for a loan via a buy-here, pay-here dealer take a look at all of possible options. Although being a victim of bad credit — a credit score between 300 and 500 — can make getting a more challenging, it isn’t difficult. Plus, you’ll find that the cost of borrowing is much lower with a bank, credit union, or online lender, regardless of your credit score. The steps to obtain an auto loan that are based on bad credit Prepare on several aspects prior to beginning the process of applying to get an automobile loan that has bad credit. Pay special attention to your credit score and make certain that the terms are all in place prior to the purchase. 1. Check your credit score before you start shopping make sure you check your score on credit. Based on the FICO credit scoring system, which ranges from 300 to 850 scores, any score lower than 580 is considered to be poor. The FICO score can be determined based on factors such as how much you owe as well as the duration of credit histories as well as how often you pay. Not making your payments on time, consistently spending more than your available monthly credit and having a bad credit history could all affect the credit score. Bankrate tip

When applying to get an auto loan make sure you do not open the credit cards of your new loans. Doing your best before you begin shopping will put you in a more favorable standing with lenders.

2. Make a savings account for a down payment If you have a lower credit score, the road, a car could increase your odds of being granted the auto loan. Saving a little cash every month to pay for a down payment could be a good way to offset higher interest rates caused by having a low credit score. It also could lower your loan-to-value ratio, allowing you to qualify for better terms. Experts recommend a down payment of at least 20 percent, but if that’s too much, you can pay what you’re able to pay. It is possible that dealers who deal with customers who are credit challenged will take as little as $1,000. 3. Research as thoroughly as you can to avoid being in a rush when it’s time to discuss the terms. Before you submit an application for a loan make sure you know what APRs are common among auto lenders. With an bad credit score, you’ll likely receive the highest advertised rates. If you’re purchasing used, it also helps to understand the features of your preferred car. 4. Start looking around. Once you’ve started the shopping process, don’t limit yourself to a single lender. There are numerous lenders that can help you get a loan for your business, such as banks and credit unions: If you already have an existing relationship with a bank or credit union you can start here. Certain credit unions and banks offer discounted rates for members. Online lenders: A lot of online lenders offer an application tool for prequalification on their websites, which lets you know what terms you might be eligible for prior to submitting an application. This could save you from an expensive credit test in the event that you do not meet the standards. Car dealerships: You are eligible if you meet the financial and credit guidelines. You’ll meet with a finance department representative, and they’ll forward your information to different lenders. Some dealers may also offer programs for those with bad credit history. But, dealers frequently mark up the rates they offer in order to earn more money on 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 accepted by banks or lender to get a loan, but be cautious. While these dealerships may be more likely to approve someone who has a credit card, the rates could be higher. Bankrate tip

The lender will conduct an extensive credit test when you apply. It’s advisable to think about at least three lenders over a period of 14 days to ensure your credit score won’t be hit by multiple slaps.

5. Prequalify with lenders through Prequalification lets you see whether you’re qualified for the loan prior to applying and also view estimated loan terms. Additionally, you’ll be able to save time on applications and avoid the needless hard credit checks that can negatively impact your score on credit. Once you’re pre-qualified with some lenders, you’ll be able to submit documentation and get preapproved. This will result in a strict credit report, however an auto loan has more weight because it is a sign of the lender’s intention to extend an auto loan towards you. Additionally, you’ll have leverage in the car dealership and negotiate with them as the cash buyer. 6. Make sure that the terms are final 6. Avoid subprime lenders Subprime lenders can seem like a good option for anyone who is trying to secure an auto loan with bad credit. They usually target those with less credit scores and can make the car purchasing process seem easy and stress-free -initially. But can come with sky-high rates of interest and could mean paying thousands of dollars extra to pay interest throughout the life of the loan. Bankrate tip

Consider subprime lenders only If you are unable to find another option for financing.

7. The terms of the shop loan terms do not include monthly payments. monthly payments look good on paper, and are often used to entice buyers. They may lead to you having to pay more money for the vehicle over the course of the loan because they . Because car loans are available for bad credit have higher APRs they could result in paying thousands more than the vehicle’s value at the close of the loan due to the accumulation of interest. When shopping for a car for a loan, you should look for the most favorable terms — usually that have the lowest rate for the shortest period. That way, you will have more manageable monthly payments with reasonable interest rates. If you cannot find a rate that is low look into buying a different vehicle. 8. Bring a companion along — and consider the possibility of a co-signer. Ask an acquaintance or family member to join you, suggests Massachusetts-based consumer lawyer Yvonne Rosmarin. A trusted friend or relative at the table to negotiate can to build confidence. A sense of confidence, when paired with knowledge, can result in more favorable loan conditions. Think about asking a trusted person in your family or friend to be a . Ideally, this individual has a steady source of income, a good credit score and an exceptional credit background. Co-signers reduce much of the risk to lenderssince the co-signer will be responsible for the loan should you fail to make your payments. The addition of a co-signer the result of lower interest rates. 9. Beware of add-ons and scams Nonprime buyers tend to be more susceptible to loan contracts that don’t include any essential goods and services, says Josh Frank, former senior researcher at the Center for Responsible Lending. Other expenses, like the cost of insurance, can be a major issue for nonprime buyers. Do not sign up for an loan which is contingent on , such as extended warranties, after-market services or . Take note of such add-ons particularly if you’re planning to apply to an auto dealer that offers buy-here or pay-here or plan to trade in your vehicle. And understand that rolling these costs into the loan is a way to be paying more interest over the loan term. 10. Be sure the terms are in place if you finance through a dealer, always make sure the terms are in place before you sign. If you don’t do this, you could have to pay more for your monthly payments. Some dealers who are shady tell buyers that their financing may not be complete well after the customer has completed the purchase and they are required to pay a higher interest rate or return the car. This is known as . Where to find the bad credit car loan Car loans are offered through a variety of banks, credit unions and online lenders. You can also use dealership financing, which is discussed in the previous paragraph. But if you have bad credit, you’re more likely to be able to secure a loan with reasonable terms through an internet lender. Some credit unions will also allow you to get the bad credit car loan if you have a good history with their organization. Take a look at Bankrate’s recommendations for the best options to consider. Cars with bad credit loan APRs Borrowers with excellent or good credit scores get the best competitive auto loan deals. However, that doesn’t mean you’ll have less options if the credit rating is lower. However, your costs for borrowing will likely be much higher because of the risk you take on the lender. Here’s a breakdown of 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 to 500

13.42%

20.62%

Subprime: 501 to 600

10.79%

17.46%

Near Prime 601 to 600

8.12%

12.08%

Prime: 661-780

5.82%

7.83%

Super Prime 781 to 851

4.75%

5.99%

Next steps If you have bad credit, it may be harder for you to obtain a car loan. You could face more favorable terms, or lenders who are predatory. However, conducting research, saving up to pay for a down payment, and getting preapproved will help in negotiating the best price for an automobile loan. If it’s the right choice for you, you should make prompt payments to improve the credit rating. Then, you may be eligible for an loan with 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 helping you finance your next venture. She hopes to assist students achieve their college and financial goals through making loans simpler to comprehend. Written by Rhys Subitch Edited by Auto loans editor Rhys has written and edited for Bankrate from late 2021. They are dedicated to helping readers gain confidence to control their finances by providing clear, well-researched information that breaks down otherwise complex topics into digestible chunks.

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