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 decisions by providing you with financial calculators and tools that are interactive, publishing original and objective content, by enabling users to conduct research and compare data for free – so that you can make sound financial decisions. Bankrate has partnerships with issuers, including but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The offers that appear on this website are provided by companies that pay us. This compensation can affect the way and when products appear on this website, for example for instance, the order in which they be listed within the categories of listing in the event that they are not permitted by law. This applies to our mortgage or home equity products, as well as other home loan products. This compensation, however, does have no impact on the information we publish, or the reviews that you see on this site. We do not cover the entire universe of businesses or financial deals that might be open to you. Anna Kraynova/Getty Images
6 min read . Published March 02, 2023.
Written by Hanneh Bareham Written by Student loans reporter Hanneh Bareham is an expert in all matters connected to student and personal loans and can help you fund your next venture. She is determined to assist students achieve their college and financial goals by making loans easier to understand. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain confidence to control their finances with clear, well-researched information that breaks down complex issues into digestible chunks. The Bankrate promise
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There are money-related questions. Bankrate has answers. Our experts have been helping you master your money for over four years. We strive to continuously provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate adheres to strict standards , so you can trust that our content is honest and precise. Our award-winning editors and reporters provide honest and trustworthy information to assist you in making the best financial decisions. The content we create by our editorial team is objective, factual, and not influenced from our advertising. We’re transparent regarding how we’re capable of bringing high-quality content, competitive rates, and helpful tools to you by explaining how we earn our 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 hyperlinks on our site. So, this compensation can affect the way, location and in what order products appear within listing categories and categories, unless it is prohibited by law. This is the case for our mortgage or home equity products, as well as other home lending products. Other factors, such as our own website rules and whether the product is offered in your region or within your own personal credit score may also influence how and where products appear on this site. We strive to provide a wide range offers, Bankrate does not include details about each credit or financial item or product. If you have a poor credit score you may be worried that you won’t be able to get 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 the possibilities. While having bad credit — a credit score between 300-500 could make getting a loan more difficult, it’s not difficult. Plus, you’ll find that the costs of borrowing are lower when you use 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 areas prior to starting the application process to get an automobile loan that has bad credit. Be particular about your credit score, and make certain that the terms are all in place before the purchase goes through. 1. Check your credit score before you start shopping, check the credit scores of your customers. Based on the FICO credit scoring system, which ranges from 300 to 850 scores, any score below 580 is considered poor. The FICO score can be determined on the basis of factors such as how much you owe and the length of your credit history, and how often you pay. Paying your bills on time, regularly overspending your monthly credit and having a bad credit history could all affect the credit score. Tips from Bankrate
Before making an application for an auto loan be sure to avoid opening any new credit card or loans. Making efforts to before you begin shopping can put you in a favorable situation with lenders.
2. Make a savings account for a down payment If you have a lower credit score, a car can increase your chances of securing and being accepted for an auto loan. Saving a little money each month to pay for a downpayment can be a good way to offset more expensive interest rates due to having a low credit score. It also can lower your loan-to-value ratio, allowing you to qualify for better terms. The experts recommend a down payment of at least 20 percent, but if that’s too much, you can put down what you are able to afford. There are dealers who work with credit-challenged clients will allow down payments as low as $1,000. 3. Research Prepare as much as you can to avoid being in a rush when it’s time to bargain. Before you submit an application for a loan be aware of what APRs are common among auto lenders. With a bad credit score, you’ll likely be offered some of the most expensive rates advertised. If you’re purchasing used, it also helps to know the of the vehicle you’re considering. 4. Explore the options once you have started your search, don’t limit yourself to a single lender. There are many lenders who can help you get a loan, including: Banks and credit unions: If you already have an existing relationship with a bank or credit union, start by looking here. Certain credit unions and banks offer members discounts on rates. Online lenders: Many online lenders provide the option of prequalifying on their sites, which allows you to see the conditions you could be eligible for prior to submitting an application. This will save you from having the hassle of a credit check in the event that you do not meet the requirements. Car dealerships: You can apply for credit if you have the required financial and credit requirements. You’ll meet with an agent from the finance department, and they’ll send your information to several lenders. Some dealers may also offer programs for people with bad credit history. However, they often mark up the rates they offer to make more money off the deal. Buy-here, pay-here dealerships Pay-here and Buy-here dealers are useful when you aren’t accepted by an institution or lender to get an loan, but be cautious. While these types of dealerships are better able to accept someone who has a credit card, the rates could be higher. Bankrate tip
Lenders run an extensive credit test during the application process. It is recommended to look 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 lets you see if you’re eligible to receive the loan before you apply and view estimates of loan terms. Plus, you’ll save time in applications and avoid unnecessary credit checks, which can affect the credit rating. When you’re prequalified with several lenders, you’ll be able to submit documents and be preapproved. This will lead to a formal credit assessment, but the loan has more weight because it represents the lender’s commitment to extend an automobile loan to you. You’ll also have leverage when walking into the dealership and negotiate with them as a cash buyer. 6. Make sure that the terms are in writing 6. Avoid subprime lenders Subprime lenders can appear to be a safe bet to anyone wondering how to secure an auto loan even with bad credit. These lenders usually cater to customers with lower credit scores and can make the car purchasing process seem easy and stress-free -initially. However, they can also come with high rates of interest, and can result in the payment of thousands of dollars to pay interest throughout the duration of the loan. Tips for banks
Only consider subprime lenders If you are unable to find an alternative financing source.
7. The terms of the shop loan terms are not monthly payments. Lower monthly payments appear attractive on paper and are usually utilized to attract buyers. They can result in paying more for your car over the course of the loan since they . Because the car loans for bad credit have higher APRs and you could 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 to purchase a car, search for the most favorable conditions — typically with the lowest interest rate over the shortest amount of time. That way, you will be able to make more affordable monthly payments with reasonable interest rates. If you are unable to locate a lower APR you can consider looking for an alternative vehicle. 8. Take a friend along Consider the possibility of a co-signer. Ask an acquaintance or family member to go with you, says Massachusetts-based consumer attorney Yvonne Rosmarin. Bringing someone you trust to the negotiating table can help inspire confidence. And confidence, combined with knowledge, could help you negotiate better loan terms. Consider asking a trusted relative or partner to become a . Ideally, the person has a steady earnings source, strong credit score and an exceptional credit background. Co-signers reduce much of the risk to lenderssince the co-signer will be accountable for the loan should you default on your payments. Adding a co-signer can be the result of lower interest rates. 9. Watch out for add-ons or scams Nonprime buyers are more likely to encounter loans that do not include essential items and services, says Josh Frank, former senior researcher at the Center for Responsible Lending. Other expenses, like , can pile up for buyers who are not prime. Don’t sign a loan which is contingent on , such as extended warranties, after-market service or . Pay attention to these add-ons particularly if you’re planning to apply at a pay-here, buy-here, or buy-here dealer or you are planning to sell your car. Also, remember that incorporating these costs into your loan means you’ll have to pay more in interest over the loan term. 10. Make sure that the terms are in place if you finance via a dealer you must be sure that 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 fully completed until after the buyer has completed the purchase and they have to accept an interest rate that is higher or return the car. This is known as . Where can you locate how to get a bad credit car loan Car loans are available from most financial institutions, including credit unions, and online lenders. There is also 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. Certain credit unions will approve you for an bad credit car loan if you have a good background with their organization. Find out which Bankrate’s choices are the best to explore options. Bad credit car loan APRs Borrowers who have good or excellent credit score get the best attractive auto loan offers. That doesn’t mean you’ll automatically have fewer options if you have a credit score lower. However, your borrowing costs will likely be much higher due to the risk you take on the lender. Here’s a breakdown of 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 660
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 more difficult to obtain a car loan. There could be more favorable terms, or unfair lending practices. However, researching, saving for a downpayment and getting preapproved will help in getting the most favorable rate in an auto loan. If you that’s right for you, you should make prompt payments to help boost your score on credit. Then, you might find an loan with better conditions. Learn 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 project. She hopes to assist others reach their collegiate and financial goals by making loans more understandable. The article was edited 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 take control of their finances with clear, well-researched information that breaks down otherwise complex topics into digestible chunks.
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