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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 mission is to help you make better financial choices by offering financial calculators and interactive tools, publishing original and objective content. This allows you to conduct research and compare information for free – so that you can make sound financial decisions. Bankrate has partnerships with issuers, including but not restricted 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 such things as the order in which they appear in the listing categories, except where prohibited by law for our mortgage, home equity and other products for home loans. But this compensation does have no impact on the content we publish or the reviews that you read on this site. We do not include the vast array of companies or financial offers that may 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 a specialist in all things related to personal and student loans and can help you fund your next venture. She strives to help people achieve their collegiate and financial goals through making loans simpler to comprehend. Edited by Rhys Subitch Edited by Auto loans editor Rhys has written and edited for Bankrate from late 2021. They are committed to helping readers gain the confidence to manage their finances through providing concise, well-studied information that breaks down otherwise complex issues into digestible chunks. The Bankrate promises

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In 1976, Bankrate was founded. Bankrate has a long track record of helping people make smart financial choices.

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who ensure everything we publish ensures that everything we publish is accurate, objective and reliable. Our loans reporter and editor concentrate on the areas that consumers are concerned about most — various types of loans available, the best rates, the best lenders, ways to pay off debt and more — so you’ll feel safe making a decision about your investment. Editorial integrity

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There are money-related questions. Bankrate has answers. Our experts have been helping you master your finances for more than four decades. We strive to continuously provide our readers with the professional advice and tools required to make it through life’s financial journey. Bankrate adheres to strict standards , so you can trust that our content is truthful and reliable. Our award-winning editors, reporters and editors produce honest and reliable content that will help you make the best financial decisions. Our content produced by our editorial staff is factual, objective and uninfluenced through our sponsors. We’re honest about how we are able to bring quality information, competitive rates and helpful tools to you , by describing how we earn our money. is an independent, advertising-supported publisher and comparison service. We receive compensation for the promotion of sponsored goods and services or by you clicking on certain hyperlinks on our site. 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 home equity, mortgage and other home lending products. Other factors, such as our own rules for our website and whether a product is available in your area or at your own personal credit score could also affect the manner in which products appear on this website. Although we try to offer a wide range offers, Bankrate does not include information about every credit or financial item or product. If you have a poor credit score, you might be concerned that you might not be approved for an auto loan from a traditional lender. However, before you take out a loan via a buy-here, pay-here dealer, consider researching all possible possibilities. Although being a victim of bad credit — a credit score between 300 and 500 may make getting a loan difficult task, it’s not impossible. Additionally, you’ll notice that the costs of borrowing are less with a bank, credit union, or online lender, whatever your credit scores. How to apply for a car loan for those with bad credit Prepare on several fronts before you start the application process for an auto loan that has bad credit. Pay special attention to your credit score, and make sure all terms are finalized before the purchase goes through. 1. Know your credit score Before you begin the shopping process make sure you check your score on credit. According to the FICO credit scoring system that ranges from 300 to 850, any score that falls less than 580 is considered as poor. It is important to know that your FICO score will be calculated using things like the amount you owe and the duration of credit histories, and your payment history. Paying your bills on time, consistently overspending your monthly credit, and having a poor credit history can all affect the credit score. The Bankrate advice

Before applying for an auto loan, avoid opening the credit cards of your new loans. Making efforts to before you begin shopping will put you in a better position with lenders.

2. Make a savings account for a down payment If you have a lower credit score, getting an automobile can boost the chances of being granted an auto loan. Making a small amount of money each month to pay for a down payment can be a good way to offset higher interest rates resulting from having a low credit score. It also could reduce your loan-to value ratio, which can help you be eligible for more favorable terms. Experts recommend a down payment of at least 20 percent however if that’s just too much, put down what you’re able to pay. It is possible that dealers who deal with credit-challenged clients will allow down payments 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 discuss the terms. Before you apply for a loan, know what and what APRs are common among auto lenders. If you have a bad credit score, you’ll likely be offered some of the most expensive rates advertised. If you’re purchasing used it is also helpful to be aware of the condition of the car you want to purchase. 4. Explore the options once you have started your search Don’t be limited to one lender. There are many lenders that can help you get an loan that include: Banks or credit unions you already have relationships with a financial institution or credit union begin here. Certain credit unions and banks offer members discounts on rates. Online lenders: Many online lenders offer a prequalification tool on their websites, which lets you know the terms you may be eligible for prior to submitting an application. This will save you from having an expensive credit test in case you don’t meet the criteria. Dealerships for cars: You may qualify if you have the required financial and credit guidelines. You’ll talk to an agent from the finance department, and they’ll forward your details to various lenders. Some dealers may offer loans to people with bad credit history. However, dealerships frequently mark up the rates they provide to make more money from the deal. Dealerships that buy-here or pay-here are a good option. Pay-here or Buy-here dealerships are useful when you aren’t an approval from an institution or lender for the loan, but be cautious. While these types of dealerships are better able to accept a person with , the interest rates could be higher. Bankrate tip

The lender will conduct an extensive credit test when you apply. It’s advisable to think about three lenders within a 14-day timeframe to ensure your credit score won’t take multiple hits.

5. Prequalify with lenders. Prequalification allows you to determine whether you’re eligible for a loan prior to submitting an application and see estimated loan terms. In addition, you’ll reduce time in applications and avoid the needless credit checks that could affect the credit rating. When you’re prequalified with a few lenders, you’ll need to provide documents and be preapproved. This will lead to a formal credit report, however a loan has more weight because it represents the lender’s commitment to extend an auto loan towards you. You’ll also have leverage when you enter the dealership, and you can negotiate as cash buyers. 6. Make sure that the terms are final. Avoid subprime lending Subprime lenders could seem like a good bet to anyone wondering how to secure an auto loan even with bad credit. These lenders usually cater to people with low credit scores, and they can make the car buying process appear easy and effortlessinitially. But they may come with astronomically high interest rates and can mean paying thousands of dollars extra on interest for the course of the loan. Tips for banks

Only consider subprime lenders in the event that you do not have another option for financing.

7. Shop loan terms, not monthly payments Lower monthly payments look attractive on paper, and are often used to lure buyers. They may lead to you spending more on your vehicle over the course of the loan because they . Because cars with loans for bad credit have higher APRs and you could end up paying thousands more than your vehicle’s value at the close of the loan because of interest accumulation. When shopping for a car for a loan, you should look for the most attractive terms — usually with the lowest interest rate over the shortest amount of time. So, you’ll be able to make more affordable monthly payments with fair interest rates. If you cannot locate a lower APR you can consider looking for an alternative vehicle. 8. Take a friend along — and consider the possibility of a co-signer. Ask an acquaintance or family member to go with you, says Massachusetts-based consumer lawyer Yvonne Rosmarin. A trusted friend or relative at the table to negotiate can to build confidence. And confidence, combined with knowledge, may help you negotiate better loan terms. You might consider asking a person in your family or friend to serve as a . Ideally, the person you choose to co-sign with has a steady sources of earnings, strong credit score, and a stellar credit history. 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. Adding a co-signer can be the result of lower interest rates. 9. Beware of add-ons and scams . Buyers who are not prime are more likely to come across 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. Never agree to an loan that is contingent upon additional warranties, for example, extended warranties, after-market services or . Be aware of these additional charges particularly if you have to make an application at a buy-here, pay-here dealership or plan to sell your car. And understand that rolling these charges into the loan means you’ll have to pay more in interest over the loan time. 10. Be sure the terms are binding if you are financing through a dealer, always be sure that the terms are final before you sign. If you don’t, you could face higher monthly payments. Some dealers who are shady tell buyers their financing is not complete well after the customer has completed the purchase and they have to accept an interest rate that is higher or return the car. This is called . Where to find a bad credit car loan Car loans are available through most financial institutions, including credit unions and online lenders. Dealership financing, which is discussed in the previous paragraph. However, if you’ve got bad credit, you’re more likely to be able to secure a loan with acceptable terms from the internet lender. Certain credit unions may accept an bad credit car loan if you have a positive track record with their institution. Take a look at Bankrate’s recommendations for the best to explore options. Bad credit car loan APRs Borrowers who have good or excellent credit get the most affordable auto loan offers. However, that doesn’t mean you’ll be denied loans if your credit score is less. However, your costs for borrowing will likely be much higher due to the risk that you take on the lender. Here’s a breakdown of 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



Subprime: 501 to 600



Near Prime: 601 to Near Prime: 601 to



Prime 661 to 780



Super Prime 781 to 850



Next steps If you are a person with bad credit, it may be harder for you to get a car loan. There could be more favorable terms, or unfair lending practices. The good news is that researching, saving to pay for a down payment, and getting preapproved will help you prepare to get the best price on an auto loan. If it’s the right choice for you, make timely payments to boost your score on credit. Then, you might find an loan with more favorable conditions. Find out more


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 through making loans easier to understand. Edited 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 the confidence to manage their finances through providing concise, well-researched, and well-researched content that break down complex topics into digestible chunks.

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