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 decisions by offering financial calculators and tools that are interactive, publishing original and objective content. We also allow users to conduct studies and compare information at no cost to help you make financial decisions with confidence. Bankrate has agreements with issuers including, but not limited 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 who pay us. This compensation may impact how and when products are featured on this site, including for instance, the order in which they may be listed within the categories of listing and other categories, unless prohibited by law. This applies to our mortgage or home equity products, as well as other home lending products. This compensation, however, does affect the information we publish, or the reviews that you read on this site. We do not include the entire universe of businesses 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 by student loans reporter Hanneh Bareham is a specialist in all things related to personal and student loans and helping you finance your next endeavor. She strives 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 committed to helping readers gain confidence to manage their finances through providing clear, well-researched information that breaks down complicated subjects into bite-sized pieces. The Bankrate promise
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If you have questions about money. Bankrate has the answers. Our experts have been helping you manage your finances for more than four decades. We strive to continuously provide consumers with the expert guidance and the tools necessary to make it through life’s financial journey. Bankrate adheres to strict standards , so you can trust that our content is truthful and precise. Our award-winning editors and reporters provide honest and trustworthy information to assist you in making the right financial choices. The content created by our editorial staff is objective, factual and uninfluenced by our advertisers. We’re transparent regarding how we’re capable of bringing high-quality content, competitive rates, and helpful tools to our customers by revealing how we earn money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We receive compensation for the promotion of sponsored goods and, services, or through you clicking specific links on our website. Therefore, this compensation may influence the manner, place and in what order products appear within listing categories and categories, unless it is prohibited by law. We also offer mortgage or home equity products, as well as other home loan products. Other factors, like our own website rules and whether or not a product is offered in the area you reside in or is within your self-selected credit score range could also affect the way and place products are listed on this website. Although we try to offer the most diverse selection of products, Bankrate does not include specific information on every financial or credit products or services. If you’re a person with a low credit score you may be concerned about whether you will get approved for a car loan from an established lender. But before settling for a loan through a dealer who buys-here-pay-here, consider researching all your possibilities. Even though having bad credit — a credit score of between 300 and 500 could make getting a loan more challenging, it isn’t difficult. Plus, you’ll find that borrowing costs are far lower when you use a bank credit union or online lender, no matter what your credit rating. How to apply for an auto loan for those with bad credit Prepare on several areas prior to starting the application process for an auto loan for those with bad credit. Pay special attention to your credit score and make certain that all terms are in place prior to the purchase. 1. Know your credit score Before you begin the shopping process, check the credit scores of your customers. Based on the FICO credit scoring system that ranges from 300 to 850 Any score less than 580 is considered as poor. The FICO score can be determined using factors like how much you owe as well as the length of your credit history, and the history of your payments. Inability to pay on time, consistently overspending your monthly credit, and having a bad credit history all can negatively impact the score of your credit. The Bankrate advice
When you apply to get an auto loan be sure to avoid opening new credit cards or loans. Doing your best before you begin shopping can put you in a better position with the lender.
2. Set aside money for a downpayment If you’re not able to pay a down payment credit score, the road, a car could increase your odds of being granted an automobile loan. Setting aside some extra money each month to pay for a downpayment can be a good way to offset higher interest rates resulting from poor credit scores and can lower your loan-to-value ratio, allowing you to be eligible for more favorable rates. Experts recommend a down payment that is at least 20 percent however if that’s just too much, just put down what you can afford. You may find that some dealers who work with credit-challenged clients will allow a down payment as low as $1,000. 3. Research Prepare as much as you can so that you don’t get caught off guard when it’s time to negotiate. Before you submit an application for a loan make sure you know what are the most common APRs offered by auto lenders. With an bad credit score, you’ll probably be offered the highest advertised rates. If you’re purchasing used, it also helps to understand the features of the car you want to purchase. 4. Explore the options once you have started the process of shopping do not limit yourself to one lender. There are a variety of lenders that can help you get the loan, including: Banks or credit unions you already have relationships with a financial institution or credit union, start here. Some credit unions and banks offer discounted rates for members. Online lenders: A lot of online lenders offer a prequalification tool 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 if you don’t meet the requirements. Car dealerships: You are eligible apply for credit if you meet the financial and credit criteria. You’ll meet with an agent from the finance department, and they’ll send your information to different lenders. Certain dealerships might also have programs for people with bad credit history. But, dealers typically mark up rates they provide to make more money on the deal. Pay-here and buy-here dealers Pay-here and Buy-here dealers can be useful if you’re not approved by a bank or lender for the loan, but be cautious. While these types of dealerships are better able to accept someone with this type of loan, the interest rates can be much higher. Bankrate tip
The lender will conduct an examination of your credit during the application process. It’s advisable to think about three lenders over a period of 14 days to ensure your credit score won’t take multiple hits.
5. Prequalify with lenders. Prequalification allows you to see if you’re eligible to receive the loan before you apply and see the estimated loan terms. In addition, you’ll reduce time in applications and avoid unnecessary credit checks that could affect your credit score. When you’re prequalified with several lenders, you can submit documents and be approved. This will result in a strict credit check, but an auto loan is more important because it is a sign of the lender’s intention to provide the auto loan to you. Also, you’ll be able to leverage yourself when you enter the dealership and can negotiate like cash buyers. 6. Check that the terms are final. Avoid subprime lending Subprime lenders could appear to be a safe option for anyone who is trying to get a car loan that has bad credit. They typically cater to customers with lower credit scores, and they can make the car purchasing process appear easy and effortless- at first. But they may come with astronomically high rates of interest, and can result in paying thousands of dollars extra to pay interest throughout the duration of the loan. Tips for banks
Consider subprime lenders only in the event that you do not have an alternative financing source.
7. Shop loan terms, not monthly payments Lower monthly payments look good on paper and are usually used to entice buyers. They may lead to you spending more on your car over the life of the loan due to the fact that they . Since the car loans for bad credit have higher APRs, you may end up paying more than the car’s full value by the close of the loan because of interest accumulation. When you’re shopping, look for the most favorable terms , which is usually that have the lowest rate for the shortest time. That way, you will have more manageable monthly payments with reasonable interest rates. If you are unable to locate a lower APR look into buying an alternative vehicle. 8. Bring a companion along and think about the possibility of a co-signer. Ask an acquaintance or family member to accompany you, suggests Massachusetts-based consumer lawyer Yvonne Rosmarin. Bringing someone you trust to the negotiating table can help to build confidence. In turn, confidence, coupled with knowledge, could lead to more favorable loan terms. Think about asking a trusted person in your family or friend to be a . Ideally, this individual must have a stable source of income, a strong credit score, and a stellar credit background. Co-signers lower the risk for lenders -as the co-signer is accountable for the loan should you default on the payments. Adding a co-signer can be the result of a lower interest rate. 9. Beware of add-ons and scams Nonprime buyers tend to be more susceptible to lending contracts with nonessential goods and services, says Josh Frank, former senior researcher for the Center for Responsible Lending. Other expenses, like , can pile up for nonprime buyers. Don’t sign an loan that is contingent upon additional warranties, for example, extended warranties, aftermarket services or . Pay attention to these additional charges particularly if you’re planning to apply at a buy-here, pay-here dealership or you plan to sell your car. And understand that rolling these charges into your loan means you’ll be paying more interest over the loan term. 10. Make sure that the terms are final If you purchase a loan with a broker, always be sure that the terms are final before you sign. If you don’t do this, you could have to pay more for your monthly payments. Some shady dealers tell car buyers that financing isn’t fully completed until after the buyer finalizes the purchase, and they must accept a higher interest rate or even return the vehicle. This is called . Where can you find the bad credit car loan Car loans are offered through a variety of bank, credit unions and online lenders. There is also dealership financing, as mentioned above. However, if you’ve got bad credit, you’re more likely to obtain a loan with acceptable terms from the internet lender. Certain credit unions will approve you for a bad credit car loan if you have a good track record with their organization. Find out which Bankrate’s choices are the most suitable options to research. Credit-worthy car loan APRs Borrowers with good or excellent credit score get the best attractive auto loan deals. However, that doesn’t mean you’ll be denied loans when your credit score is less. But, the cost of borrowing are likely to be more expensive 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
Cars used
Deep Subprime 300 to 500
13.42%
20.62%
Subprime: 501-600
10.79%
17.46%
Near Prime 601 to 600
8.12%
12.08%
Prime: 661-780
5.82%
7.83%
Super Prime: 781 to 850
4.75%
5.99%
The next step is to take if you are a person with bad credit, it may be harder for you to obtain a car loan. You may face lower interest rates or unfair lending practices. However, doing your research, saving to pay for a down payment, and getting preapproved will help you prepare to get the best deal in an auto loan. If it’s the right choice for you, you should make prompt payments to improve your credit score. In the future, you might find a loan with better conditions. Find out 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 aims to help people achieve their collegiate and financial goals by making loans simpler to comprehend. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are dedicated to helping readers gain the confidence to manage their finances through providing concise, well-researched, and well-researched content that breaks down complicated subjects into bite-sized pieces.
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