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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 aim is to assist you make better financial decisions by providing you with financial calculators and interactive tools, publishing original and objective content, by enabling users to conduct studies and compare information for free to help you make financial decisions with confidence. Bankrate has partnerships with issuers, including but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this site come from companies that compensate us. This compensation could affect how and when products are featured on the site, such as such things as the sequence in which they appear within the listing categories, except where prohibited by law. This applies to our mortgage, home equity and other products for home loans. But this compensation does not influence the content we publish or the reviews you see on this site. We do not contain the entire universe of businesses or financial offers that may be accessible 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 helping you finance your next endeavor. She strives to help students achieve their college and financial goals by making loans more understandable. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are dedicated to helping readers gain the confidence to take control of their finances with concise, well-studied information that breaks down complicated subjects into bite-sized pieces. The Bankrate promises
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At Bankrate we are committed to helping you make smarter financial decisions. We are committed to maintaining strict ethical standards ,
This article may include some references to products offered by our partners. Here's how we earn money . The Bankrate promise
Founded in 1976, Bankrate has a proven track record of helping people make smart financial choices.
We've earned this name for over 40 years by making financial decisions easy to understand
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You can rest assured that we're putting your interests first. All of our content was created in the hands of and edited by ,
We make sure that everything we publish ensures that everything we publish is accurate, objective and trustworthy. Our loans reporters and editors focus on the points consumers care about most -- different kinds of loans available, the best rates, the most reliable lenders, how to pay off debt , and more -- so you can feel confident when investing your money. Integrity of the editing
Bankrate has a strict policy and rigorous policy, so you can rest assured that we put your interests first. Our award-winning editors, reporters and editors produce honest and reliable content to assist you in making the right financial decisions. Key Principles We value your trust. Our mission is to provide our readers with accurate and unbiased information. We have editorial standards in place to ensure that this happens. Our editors and reporters rigorously check the accuracy of editorial content to ensure that the information you're reading is accurate. We keep a barrier between advertisers as well as our editorial staff. Our editorial team does not receive compensation directly by our advertising partners. Editorial Independence Bankrate's editorial staff writes in the name of YOU - the reader. Our goal is to give you the most relevant information to assist you in making intelligent financial decisions for your personal finances. We follow strict guidelines to ensure that our editorial content is not affected by advertisements. Our editorial team is not paid any compensation directly from advertisers and all of our content is verified to guarantee its accuracy. Therefore, whether you're reading an article or a report, you can trust that you're receiving reliable and reliable information. How we make money
There are money-related questions. Bankrate has the answers. Our experts have been helping you manage 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 follows a strict , so you can trust that our content is honest and reliable. Our award-winning editors and reporters provide honest and trustworthy information to assist you in making the right financial choices. The content we create by our editorial team is factual, objective and is not influenced by our advertisers. We're open regarding how we're in a position to provide quality content, competitive rates, and useful tools to 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 placement of sponsored products and, services, or when you click on certain hyperlinks on our website. So, this compensation can influence the manner, place and in what order products 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, such as our own rules for our website and whether or not a product is available within your region or within your own personal credit score could also affect the manner in which products appear on this website. We strive to provide the most diverse selection of products, Bankrate does not include information about each credit or financial products or services. If you're a person with a low credit score, you might be concerned about whether you will get approved for 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 options. Although being a victim of bad credit -- a credit score of between 300-500 could make getting a loan difficult task, it's not difficult. In addition, you'll discover that borrowing costs are far lower when you use a bank credit union or online lender regardless of your credit score. Steps to get a car loan that are based on bad credit Prepare on several areas prior to starting the process of applying for an auto loan for those with bad credit. Take note of your credit score and make certain that the terms are all in place prior to making the purchase. 1. Check your credit score before you start shopping Check the credit scores of your customers. According to the FICO credit scoring system, which can range from 300-850 scores, any score below 580 is considered poor. Your FICO score is calculated on the basis of factors such as how much you owe and the length of your credit record and how often you pay. Inability to pay on time, regularly spending more than your available monthly credit and having a poor credit history can all negatively impact your credit score. Bankrate tip
Before making an application for an auto loan be sure to avoid opening the credit cards of your new loans. Making efforts to before you begin shopping can put you in a better position with lenders.
2. Save for a down payment If you're not able to pay a down payment credit score, getting a car can increase your chances of securing and getting granted an automobile 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 can lower your loan-to-value ratio, which can help you qualify for better rates. Experts suggest a downpayment of at least 20 , but if that's too much, put down what you're able to pay. You may find that some dealers who deal with customers who are credit challenged will take down payments as low as $1,000. 3. Research Prepare as much as you can to avoid being surprised when the time comes to discuss the terms. When you're applying for a loan make sure you know the typical APRs for auto lenders. With an bad credit score, you'll likely be offered some of 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. Explore the options once you have started the shopping process Don't be limited to one lender. There are a variety of lenders that can help you secure an loan for your business, such as banks and credit unions: If already have an existing relationship with a bank or credit union start by looking here. Some credit unions and banks offer discounted rates for members. Online lenders: A lot of online lenders have a prequalification tool on their websites, which lets you know what terms you might be eligible for before applying. This can save you the hassle of a credit check if you don't meet the requirements. Car dealerships: You can if you have the required financial and credit requirements. You'll have a meeting with a finance department representative, and they'll send your information to several lenders. Some dealers may also offer programs for people with bad credit history. However, dealerships frequently mark up the rates they offer to make more money on the deal. Dealerships that buy-here or pay-here Pay-here and Buy-here dealers are useful when you don't get accepted by banks or lender to get a loan, but be cautious. While these dealerships may be better able to accept an applicant with , the interest rates could be higher. Bankrate tip
Lenders run a hard credit check in the course of applying. It is recommended to look at least three lenders within a 14-day timeframe so your credit score doesn't suffer multiple blows.
5. Prequalify with lenders through Prequalification allows you to determine if you're eligible to receive a loan prior to submitting an application and see the estimated loan terms. Additionally, you'll be able to save time on applications and avoid unnecessary hard credit checks that can affect the credit rating. Once you're pre-qualified with several lenders, you'll need to provide documents and be preapproved. This will result in a strict credit report, however an auto loan holds more weight as it represents the lender's commitment to provide the auto loan for you. You'll also have leverage when you enter the dealership and can negotiate like the cash buyer. 6. Be sure the terms are final 6. Avoid subprime lending Subprime lenders could seem like a good option for anyone who is trying to get an auto loan that has bad credit. They usually target those with less credit scores and make the car purchasing process seem effortless and easyinitially. But can come with sky-high interest rates and can mean 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 financing option.
7. The terms of the shop loan terms, 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 vehicle over the life of the loan because they . Since car loans are available for bad credit have higher APRs they could result in paying thousands more than the car's worth by the end of the loan because of interest accumulation. When shopping for a car, look for the best conditions -- typically with the lowest interest rate over the shortest amount of time. This way, you'll have a more manageable monthly payment with fair interest rates. If you can't find a low APR you can consider looking for an alternative vehicle. 8. Bring a companion along Consider co-signing with someone you know or a family member to go with you, suggests Massachusetts-based consumer attorney Yvonne Rosmarin. Bringing someone you trust to the table to negotiate can to build confidence. In turn, confidence, coupled with knowledge, could lead to more favorable loan conditions. You might consider asking a person in your family or friend to be a . Ideally, this individual should have a steady earnings source, strong credit score and an exceptional credit background. Co-signers reduce much of the risk for lenders -as the co-signer is responsible for the loan should you default on the payments. Co-signing with a co-signer could be a and usually results in a lower interest rate. 9. Watch out for add-ons or frauds. Nonprime buyers are more likely to come across loans that do not include essential items and services, says Josh Frank, former senior researcher at the Center for Responsible Lending. Other costs, such as the cost of insurance, can be a major issue for those who aren't prime buyers. Do not sign up for a loan that is contingent upon certain things, like extended warranties, aftermarket services or . Take note of such extras particularly if you're planning to apply to a buy-here, pay-here dealership or you are planning to sell your car. Also, remember that incorporating these costs into the loan is a way to be paying more interest during the loan time. 10. Make sure that the terms are in place if you finance through a dealer, always be sure that the terms are final before signing. If you don't do this, you could face higher monthly payments. Certain dealers that are scams tell buyers that their financing may not be complete well after the customer has completed the purchase and they must accept the higher rate of interest or return the car. This is known as . Where can I find how to get a bad credit car loan Car loans are offered through a variety of financial institutions, including credit unions and online lenders. There is also dealership financing, as discussed above. If you're a person with bad credit, you're more likely to obtain a loan with acceptable terms from an internet lender. Some credit unions will also approve you for an bad credit car loan if you have a good history 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 best affordable auto loan deals. This doesn't mean that you'll be denied loans when you have a credit score less. But, the cost of borrowing will likely be much higher because of the risk you present to the lender. Here's a breakdown on the most current average interest rates based on 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 600
8.12%
12.08%
Prime 661 to 780
5.82%
7.83%
Super Prime: 781 to 850
4.75%
5.99%
The next step is to take if you have bad credit, it may be more difficult to obtain an auto loan. There could be lower interest rates or predatory lending practices. The good news is that conducting research, saving up to pay for a down payment, and getting preapproved will help you prepare to get the best price on an auto loan. If you that's right for you, be sure to make punctual payments to boost your score on credit. Then, you may be eligible for a loan with even 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 can assist you in financing your next endeavor. She aims to help students achieve their college and financial goals through making loans more understandable. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are dedicated to helping readers gain the confidence to control their finances through providing precise, well-researched and thorough information that break down complex topics into manageable bites.
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