How to get a car loan with bad credit Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make better financial choices by providing you with interactive tools and financial calculators as well as publishing original and impartial content. This allows users to conduct research and compare information for free - so that you can make informed financial decisions. Bankrate has partnerships with issuers such as, 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 site come from companies that compensate us. This compensation can affect the way and when products appear on this website, for example such things as the order in which they be listed within the categories of listing and other categories, unless prohibited by law for our mortgage or home equity products, as well as other home loan products. However, this compensation will not influence the information we provide, or the reviews appear on this website. We do not cover the vast array of companies or financial deals that might be available to you. Anna Kraynova/Getty Images
6 min read . Published March 02, 2023
Written by Hanneh Bareham Written by student loans reporter Hanneh Bareham specializes in everything related to personal and student loans and can help you fund your next venture. She aims to help students achieve their college and financial goals through making loans simpler to comprehend. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain confidence to manage their finances with concise, well-studied information that breaks down otherwise complex issues into digestible chunks. The Bankrate guarantee
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who ensure everything we publish ensures that everything we publish is accurate, objective and reliable. The loans reporter and editor concentrate on the points consumers care about most -- different kinds of loans available as well as the best rates, the top lenders, the best ways to repay debt, and more . This means you'll be able to feel secure when investing your money. Integrity in editing
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You have money questions. Bankrate can help. Our experts have been helping you manage your finances for more than four decades. We strive to continuously provide consumers with the expert advice and tools required to make it through life's 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, reporters and editors create honest and accurate content that will help you make the right financial choices. The content created by our editorial staff is factual, objective and uninfluenced by our advertisers. We're open regarding how we're in a position to provide quality information, competitive rates and helpful tools for you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for the placement of sponsored products and services or by you clicking on specific links on our website. So, this compensation can impact how, where and in what order items are displayed within the categories of listing and categories, unless it is prohibited by law. We also offer mortgage home equity, mortgage and other home lending products. Other factors, like our own rules for our website and whether or not a product is available within the area you reside in or is within your own personal credit score may also influence the way and place products are listed on this site. While we strive to provide an array of offers, Bankrate does not include details about every credit or financial item or product. If you're a person with a low credit score, you may be concerned that you might not get approved for an auto loan from an established lender. However, before you take out a loan through a buy-here-pay-here dealer think about researching all your options. Although you may have bad credit -- a credit score that is between 300 and 500 -- could make getting a loan more challenging, it isn't difficult. Additionally, you'll notice that the costs of borrowing are lower when you use a bank credit union, or online lender, whatever your credit scores. Steps to get an auto loan that are based on bad credit Prepare on several fronts before you start the process of applying 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 credit score. According to the FICO credit scoring system which can range from 300-850, any score that falls below 580 is considered poor. The FICO score will be calculated based on factors such as how much you owe and the length of your credit record, and your payment history. Not making your payments punctually, spending more than your available monthly credit and having a poor credit history all can negatively impact the score of your credit. The Bankrate advice
When you apply 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 more favorable situation with the lenders.
2. Save for a down payment If you're not able to pay a down payment credit score, the road, a car could increase your odds of being approved for the auto loan. Making a small amount of cash every month for a down payment can help offset the higher interest rates caused by a less-than-stellar credit score and could lower your loan-to-value ratio, allowing you to qualify for better rates. Experts recommend a down payment of at least 20 , but if that's too much, just put down what you are able to afford. There are dealers that work with customers who are credit challenged will take as little as $1,000. 3. Research as much as possible so you're not in a rush when it's time to bargain. Before you submit an application for a loan be aware of what are the most common APRs offered by auto lenders. If you have the bad credit score, you'll likely receive the highest advertised rates. If you're purchasing a used car, it also helps to understand the features of the vehicle you're considering. 4. Start looking around. Once you've started the process of shopping Don't be limited to just one lender. There are many lenders who can help you obtain a loan that include: Banks and credit unions: If you already have an existing relationship with a bank or credit union, begin here. Some banks and credit unions provide members with discounted rates. Online lenders: A lot of online lenders provide a prequalification tool on their websites, which lets you know the conditions you could be eligible for prior to submitting an application. This will save you from having an expensive credit test in the event that you do not meet the standards. Car dealerships: You can apply for credit if you meet the financial and credit criteria. You'll talk to an official from the finance department and they'll forward your information to several lenders. Some dealerships may offer loans to those with bad credit history. But, dealers frequently mark up the rates they provide to make more money from the deal. Pay-here and buy-here dealers: Buy-here, pay-here dealerships are useful when you aren't approved by banks 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
They conduct a hard credit check in the course of applying. It's advisable to think about three lenders within a 14-day timeframe so your credit score doesn't be hit by multiple slaps.
5. Prequalify with lenders Prequalification allows you to see if you're eligible for an loan prior to applying and view the estimated loan terms. Additionally, you'll be able to save time in applications and avoid unnecessary hard credit checks that can negatively impact your credit score. After you've been prequalified by several lenders, you'll be able to submit documentation and get preapproved. This will result in a strict credit assessment, but the loan is more important because it is a sign of the lender's intention to provide an auto loan for you. Also, you'll be able to leverage yourself when walking into the dealership and negotiate with them as the cash buyer. 6. Make sure that the terms are final. Avoid subprime lenders Subprime lenders can appear to be a safe option for anyone who is trying to obtain a car loan that has bad credit. They typically cater to people with low credit scores, and they can make the car buying process appear easy and effortlessinitially. But can come with sky-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
Do not consider subprime lenders If you are unable to find another option for financing.
7. The terms of the shop loan terms are not monthly payments. Lower monthly payments appear attractive on paper and are typically used to lure buyers. They can result in paying more for your car over the course of the loan because they . Because car loans specifically designed for bad credit have higher APRs and you could end up paying thousands more than the car's worth by the expiration of the loan because of interest accumulation. When shopping for a car, look for the most favorable terms , which is usually with the lowest interest rate over the shortest amount of time. That way, you will have a more manageable monthly payment with reasonable interest rates. If you can't find a rate that is low look into buying another vehicle. 8. Bring a friend with you Consider co-signing with someone you know or a family member to go with you, says Massachusetts-based consumer attorney Yvonne Rosmarin. A trusted friend or relative at the table to negotiate can create confidence. And confidence, combined with knowledge, may help you negotiate better loan terms. Consider asking a trusted person in your family or friend to be a . Ideally, this individual has a steady source of income, a high credit score, and a stellar credit background. Co-signers reduce much of the risk that lenders face- because the co-signer is accountable for the loan should you default on your repayments. Co-signing with a co-signer could be a and usually results in an interest rate that is lower. 9. Watch out for add-ons or scams . Buyers who are not prime tend to be more susceptible to loans that do not include essential items and services, says Josh Frank, former senior researcher for the Center for Responsible Lending. Other costs, including that can add up for buyers who are not prime. Never agree to an loan that is contingent upon , such as extended warranties, after-market services or . Take note of such extras, especially if you need to apply to a pay-here, buy-here, or buy-here dealer or you plan to trade in your vehicle. And understand that rolling these costs into your loan will mean you'll have to pay more interest during the loan time. 10. Check that the terms are in place if you are financing with a broker, always ensure the terms are final prior to signing. If you don't do this, you could have to pay more for your monthly payments. Certain dealers that are scams tell buyers their financing is not completed until the buyer completes the purchase. They then inform the buyer that they are required to pay the higher rate of interest or even return the vehicle. This is known as . Where to find the bad credit car loan Car loans are available from most banks, 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 obtain a loan that has reasonable terms with an online lender. Certain credit unions will accept a bad credit car loan if you have a good history with their institution. Find out which Bankrate's choices are the best options to consider. Bad credit car loan APRs Those with good or excellent credit get the best affordable auto loan offers. That doesn't mean you'll automatically have fewer options even if you have a credit score less. However, your borrowing costs are likely to be higher because of the risk you pose to the lender. Here's a breakdown of the most current average interest rates based on credit score for the fourth quarter of 2022: Credit score range
New car
Cars used
Deep Subprime 300-500 500
13.42%
20.62%
Subprime: 501 to 600
10.79%
17.46%
Near Prime 601 to 600
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 tougher for you to get a car loan. You could face lower interest rates or unfair lending practices. It's good to know that doing your research, saving to pay for a down payment, and getting preapproved help you prepare to get the most favorable rate in an auto loan. If it's the right choice for you, you should make prompt payments to boost the credit rating. Then, you may be eligible for a loan with more favorable terms. Learn more
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Written by student loans reporter Hanneh Bareham specializes in everything related to personal and student loans and can help you finance your next endeavor. She is determined to assist others reach their collegiate and financial goals by making loans easier to understand. Written by Rhys Subitch Edited by Auto loans editor Rhys has written and edited for Bankrate since the end of 2021. They are dedicated to helping readers gain confidence to take control of their finances through providing concise, well-researched, and well-researched content that break down complex topics into digestible chunks.
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