How to get a car loan with bad credit Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make better financial choices by offering financial calculators and tools that are interactive, publishing original and objective content, by enabling users to conduct research and compare data for free to help you make informed financial decisions. Bankrate has agreements with issuers such as, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The deals that are advertised on this website are provided by companies who pay us. This compensation can affect the way and when products appear on the site, such as such things as the order in which they appear in the listing categories in the event that they are not permitted by law. Our mortgage home equity, mortgage and other home loan products. But this compensation does have no impact on the information we provide, or the reviews appear on this website. We do not cover the entire universe of businesses or financial offerings that could be accessible to you. Anna Kraynova/Getty Images
6 minutes read Read Published March 02, 2023
written by Hanneh Bareham. Written by student loans reporter Hanneh Bareham specializes in everything connected to student and personal loans and helping you fund your next venture. She strives to help students achieve their college and financial goals by making loans simpler to comprehend. 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 confidence to manage their finances with precise, well-studied and well-researched data that breaks down otherwise complex topics into manageable bites. The Bankrate promise
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There are money-related questions. Bankrate can help. Our experts have been helping you master your finances for more than four decades. We continually strive to give our customers the right 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 information is trustworthy and reliable. Our award-winning editors and journalists provide honest and trustworthy content that will help you make the best financial decisions. The content created by our editorial team is objective, truthful, and not influenced by our advertisers. We’re transparent about the ways we’re in a position to provide quality content, competitive rates, and helpful tools for our customers by revealing how we earn money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for the promotion of sponsored goods and, services, or when you click on certain links posted on our website. This compensation could affect the way, location and when products are displayed within the categories of listing, except where prohibited by law. We also offer mortgage, home equity and other products for home loans. Other elements, such as our own website rules and whether a product is offered in the area you reside in or is within your personal credit score may also influence how and where products appear on this website. While we strive to provide the most diverse selection of products, Bankrate does not include specific information on every financial or credit item or product. If you have a low credit score you may be concerned that you might not be able to get an auto loan from a traditional lender. However, before you take out a loan through a buy-here-pay-here dealer take a look at all of the alternatives. Even though having bad credit — a credit score that is between 300 and 500 could make getting a loan difficult task, it’s not impossible. Additionally, you’ll notice that the cost of borrowing is much lower with a bank, credit union, or online lender whatever your credit scores. 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 before the purchase goes through. 1. Check your credit score before you begin the shopping process make sure you check the credit scores of your customers. According to the FICO credit scoring system which is ranging from 300 to 850, any score that falls less than 580 is considered as poor. It is important to know that your FICO score is calculated based on factors like how much you owe, the duration of your credit history, and the history of your payments. Inability to pay on time, consistently using more credit than you have available monthly credit, and having a poor credit history all can negatively impact your credit score. Bankrate tip
When applying for an auto loan be sure to avoid opening the credit cards of your new loans. Doing your best before you start shopping puts you in a better standing with lenders.
2. Make a savings account for a down payment If you have a less than stellar credit score, the road, a car could increase the chances of being granted the auto loan. Saving a little cash each month for a downpayment can also offset higher interest rates resulting from a less-than-stellar credit score and could lower your loan-to-value ratio, allowing you to qualify for better conditions. The experts recommend a down payment of at least 20 percent however if that’s just too much, 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 as thoroughly as you can to avoid being surprised when the time comes to negotiate. Before you apply for a loan be aware of what APRs are common among auto lenders. If you have a bad credit score, you’ll probably be offered the most expensive rates advertised. If you’re buying used it is also helpful to know the of your preferred car. 4. Explore the options once you have started the process of shopping, don’t limit yourself to one lender. There are a variety of lenders that can assist you to secure a loan for your business, such as banks as well as credit unions. If already have a relationship with a bank or credit union, start here. Certain credit unions and banks provide members with discounted rates. Online lenders: A lot of online lenders provide the option of prequalifying on their websites. This lets you know the conditions you could be eligible for prior to submitting an application. This can save you a hard credit check in the event that you do not meet the requirements. Dealerships for cars: You may qualify apply for credit if you satisfy the credit and financial guidelines. You’ll meet with an official from the finance department and they’ll forward your details to various lenders. Some dealerships may also have programs for people with bad credit history. But, dealers frequently mark up the rates they offer to make more money on the deal. Buy-here, pay-here dealerships Pay-here and Buy-here dealers are useful when you aren’t an approval from banks or lender for a loan, but be cautious. While these dealerships may be more likely to approve an applicant with , the interest rates are often much higher. Bankrate tip
Lenders run an extensive credit test when you apply. It’s advisable to think about three lenders over a period of 14 days to ensure that your credit score doesn’t be hit by multiple slaps.
5. Prequalify with lenders. Prequalification allows you to see whether you’re eligible to receive a loan prior to applying and view estimates of loan terms. In addition, you’ll reduce time on applications and avoid the needless hard credit checks that can negatively impact your score on credit. When you’re prequalified with some lenders, you’ll need to provide documents and be preapproved. It’ll result in a hard credit assessment, but an auto loan has more weight because it demonstrates the lender’s willingness to provide the auto loan to you. You’ll also have leverage when walking into the dealership and can negotiate like cash buyers. 6. Make sure that the terms are final. Avoid subprime lenders Subprime lenders may seem like a sure bet to anyone wondering how to secure an auto loan with bad credit. They usually target people with low credit scores and can make the car purchasing process seem effortless and easyinitially. But they may come with astronomically high rates of interest and could mean paying thousands of dollars more to pay interest throughout the life of the loan. Tips for banks
Consider subprime lenders only if you cannot find an alternative financing source.
7. Shop loan terms are not monthly payments. Lower monthly payments look good on paper, and are often used to entice buyers. They can result in having to pay more money for the car over the life of the loan because they . Because the car loans are available for bad credit have higher APRs they could result in paying thousands more than your vehicle’s value at the close of the loan due to the accumulation of interest. When you shop for a loan, you should look for the most favorable conditions — typically that have the lowest rate for the shortest amount of time. This way, you’ll be able to make more affordable monthly payments with fair interest rates. If you can’t find a rate that is low you can consider looking for another vehicle. 8. Bring a companion along and think about the possibility of a co-signer. Ask a friend or a relative to accompany you, suggests Massachusetts-based consumer lawyer Yvonne Rosmarin. A trusted friend or relative at the negotiation table can inspire confidence. A sense of confidence, when paired with knowledge, may help you negotiate better loan conditions. Think about asking a trusted person in your family or friend to be a . Ideally, the person must have a stable sources of earnings, good credit score, and a stellar credit history. Co-signers reduce much of the risk to lendersas the co-signer is accountable for the loan should you default on your repayments. Adding a co-signer can be the result of an interest rate that is lower. 9. Look out for add-ons and scams . Buyers who are not prime tend to be more susceptible to loans that do not include essential goods and services, says Josh Frank, former senior researcher at the Center for Responsible Lending. Other costs, such as , can pile up for nonprime buyers. Do not sign up for any loan which is contingent on certain things, like extended warranties, after-market service or . Take note of such extras, especially if you need to apply to an auto dealer that offers buy-here or pay-here or you are planning to sell your car. And understand that rolling these charges into the loan will mean you’ll have to have to pay more in interest during the loan time. 10. Check that the terms are binding if you purchase a loan via a dealer make sure to be sure that the terms are final before signing. If you don’t, you could be charged more monthly. Some dealers who are shady tell buyers that their financing may not be complete well after the customer completes the purchase. They then inform the buyer that they are required to pay the higher rate of interest or return the car. This is known as . Where can I locate a bad credit car loan Car loans are offered through a variety of bank, credit unions, and online lenders. You can also use dealership financing, as mentioned above. However, if you’ve got bad credit, you’re more likely to obtain a loan that has reasonable terms with an online lender. Certain credit unions will approve you for an bad credit car loan if you have a solid history with their institution. Check out Bankrate’s picks for the best to explore options. Cars with bad credit loan APRs Borrowers who have excellent or good credit scores get the most attractive auto loan deals. That doesn’t mean you’ll automatically have fewer options even if your credit score is less. However, your borrowing costs are likely to be higher due to the risk you present to the lender. Here’s a breakdown on the current interest rates for the average credit score for the fourth quarter of 2022 The credit score range
New car
Car used
Deep Subprime 300-500 500
13.42%
20.62%
Subprime: 501-600
10.79%
17.46%
Near Prime 601 to 660
8.12%
12.08%
Prime: 661 to 780
5.82%
7.83%
Super Prime: 781 to 851
4.75%
5.99%
The next step is to take if you have bad credit, it may be more difficult to obtain a car loan. You could face more favorable terms, or predatory lending practices. The good news is that researching, saving for a down payment and getting preapproved will help in negotiating the most favorable rate for an automobile loan. If this is the loan for you, be sure to make punctual payments to improve your credit score. Then, you might find the loan with better terms. Find out more
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Written by student loans reporter Hanneh Bareham specializes in everything related to personal and student loans and helping you finance 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 written and edited for Bankrate since late 2021. They are dedicated to helping readers gain confidence to manage their finances by providing concise, well-researched, and well-researched content that breaks down otherwise complex topics into digestible chunks.
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