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You may be able to get a car loan with bad credit, but you’ll want to carefully weigh the costs.
If you need a car loan but have less-than-perfect credit, your financing terms may be expensive. Lenders use credit scores to estimate the likelihood you’ll pay back your loan — the lower your scores, the more risk they believe they’re taking on. In exchange for that risk, lenders will usually charge a higher interest rate.
For example, someone with subprime credit (which Experian defines as scores of 501 to 600) received an average rate of 11.53% for a new vehicle and 18.55% for a used one in the first quarter of 2023, according to an Experian report. By comparison, the average interest rate on a 60-month new-car loan was 7.48% during that same period, according to the Federal Reserve.
We’ll look at some steps you can take to shop for an auto loan that may help lower the cost of financing a vehicle, as well as review our picks for auto lenders that offer car loans for bad credit.
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- How can I get financed for a car loan with bad credit?
- What’s a good credit score for a car loan?
- Best car loans for bad credit
How can I get financed for a car loan with bad credit?
These steps could help you improve your chances of getting approved for a car loan that fits your budget.
Check your credit scores
Before you begin shopping for a car loan, check your credit. Review your credit reports for any incorrect information and dispute those errors. Inaccuracies could lower your credit scores and hurt your ability to qualify for a loan.
Checking your credit can also help set your expectations before you start looking for a loan. You can check your Equifax and TransUnion credit reports for free on Credit Karma or request one free credit report from each credit bureau per year at annualcreditreport.com.
If you don’t need a new car right away, taking some time to build your credit could pay off — you may be able to qualify for a lower interest rate that could save you thousands on your auto loan.
But if you can’t wait, you may want to consider asking a family member or close friend to be a co-signer. A co-signer with good credit could give you a better chance of getting approved for a loan or may help you get a better loan rate and terms.
Save for a down payment
Saving for a down payment on your car can come with several benefits. First, a down payment may help you qualify for an auto loan more easily, especially if you have low credit scores. Without a down payment, the lender takes on more risk since it may lose more money if you don’t repay the loan and it needs to repossess the car. In fact, some lenders may require you to put some money down.
Plus, you’ll pay less interest with a down payment. The more money you put down, the less you’ll need to borrow for the car. That means you’ll pay interest on a smaller balance, lowering your total interest paid.
You may also get a lower interest rate if you make a down payment. Lenders consider your loan-to-value ratio — your loan amount versus the value of the vehicle — when setting your interest rate.
Determine how much you can afford
Think beyond your monthly loan payment as you figure out how much you can afford to borrow. Consider the costs of car ownership — such as fuel, regular maintenance, auto insurance, and any parking expenses or property taxes — and factor them into your budget.
It may be tempting to stretch your loan term to six or seven years in exchange for a lower monthly payment. But keep in mind that a longer auto loan term (like up to 84 months) means you could end up paying more in interest over the length of the loan — and you increase your risk of becoming upside down on your loan, which can create some challenges when it’s time to sell or trade in your car because you’ll owe more than it’s worth.
Our auto loan calculator can help you estimate how much you’d pay in interest on a car loan.
Shop with different lenders
Shopping around and comparing rates and loan terms across lenders may help you find the best loan for your needs and your budget. If you have bad credit, here are some lenders you might consider.
- Your current bank or credit union — If you already have a relationship with a bank or credit union, that can be a good place to start.
- Online lenders — Some online lenders and lending platforms specialize in car loans for people with bad credit. They may also allow you to apply for prequalification directly on their websites. If you’re prequalified, you’ll be able to see the estimated loan rate and terms you may qualify for. Just keep in mind that prequalification isn’t a guarantee you’ll be approved for the loan or the estimated loan terms.
- Car dealerships — Dealerships typically have relationships with a number of banks and finance companies, which means they may be able to find a lender in their network that will approve you for a loan. Some dealerships also have special financing departments that are dedicated to helping people with poor credit.
- Buy-here, pay-here dealerships — If you can’t get approved for an auto loan anywhere else and you need a car, a buy-here, pay-here dealership could be an option — but consider it a last resort. These “no credit check” dealerships offer their own loans to people with bad credit — and their interest rates tend to be much higher than those offered by banks and other lenders.
To minimize the impact that shopping for an auto loan can have on your credit, it’s a good idea to shop for rates within the same time period. FICO scoring models count multiple credit inquiries of the same type within a 45-day period as a single inquiry. VantageScore counts multiple inquiries within a 14-day period as a single inquiry.
Check for auto loan offersView Estimated Loan Terms
What’s a good credit score for a car loan?
There is no universal minimum credit score needed for a car loan, but the terms and approval odds of a loan are impacted by your credit scores. Lower credit often means fewer available offers and generally higher interest rates — which why it’s important to shop around for the best terms on potential auto loans. When possible, working to improve your credit scores before applying for a loan may help improve the terms of your offer.
Can I get a car loan with a 500 credit score?
It’s possible to get a car loan with a credit score of 500, but it’ll cost you. People with credit scores of 500 or lower received an average rate of 14.08% for new-car loans and 21.32% for used-car loans in the first quarter of 2023, according to the Experian State of the Automotive Finance Market report.
That’s a big difference from the loan rates for people with credit scores of 661 to 780 (considered prime) — they received average rates of 6.4% for new-car loans and 8.75% for used-car loans.
Getting a car loan with a credit score of 500 could be tough, too. The Experian report shows that only 5.08% of new-car loans and 3.06% of used-car loans issued in the first quarter of 2023 went to people with credit scores of 500 or lower.
Best car loans for bad credit
Here are some of our picks for lenders that offer car loans for bad credit.
Good for interest rate discounts: New Roads
New Roads offers interest rate discounts on certain pre-owned and new car models that could reduce your overall interest payments. And if you’re struggling to come up with a down payment, it’s good to know that New Roads doesn’t require one.
Read our New Roads auto loans review for more information.
Good for one-stop shopping: Carvana
With Carvana, you can save time by shopping for financing and a car in one place. Carvana considers applicants with bad credit, as long as they’re 18 years old, have a minimum income of $4,000 per year and have no active bankruptcies.
Check out our Carvana financing review for more details.
Good for people who have filed bankruptcy: RoadLoans
In general, bankruptcies in your credit history can affect your ability to get approved for an auto loan. But RoadLoans considers applicants who have filed for bankruptcy in the past — as long as the bankruptcy has been discharged.
Learn more — read our RoadLoans review.
FAQs for getting a car loan with bad credit
Are there still car loan options available for people with bad credit scores?
Though the options can feel limited at times, there is no specific score required to receive a car loan, so possibilities exist for any credit score. That said, there may be fewer options available, and the terms may be less appealing if your score is on the lower end.
Can I negotiate car price with bad credit?
You can still try to negotiate car price with bad credit, but you may have less leverage with poor credit. Still, it’s important to research the market value of the car you want, negotiate each part of the transaction separately and remember to keep emotion out of the transaction when you can.
How long does it take to get approved for a bad credit car loan?
Applying for a car loan is a long and involved process regardless of your credit scores. You’ll want to determine your budget and compare lenders before applying. Even once the loan is approved there’s often additional paperwork. Different lenders often have different turnaround times on applications, so check whether the timeframe available works for you.
Looking to build your credit? Consider a credit builder loan.
Taking out a credit builder loan can help you build your credit by giving you the opportunity to show you can make regular on-time payments, which is an important part of your credit scores.
When you get a credit builder loan, the lender typically puts the money you’ve borrowed into a reserve account it controls. You then make regular payments toward the loan, building a positive payment history that’s reported to the credit bureaus. When the loan is paid off (or you reach a certain threshold), the lender gives you access to the funds.
Loan fees, interest and repayment terms vary among lenders, so you’ll want to compare your options before applying.
You might also want to consider Credit Karma’s Credit Builder plan, which can help you build low credit while you save.
What’s next?
Car loans for bad credit are out there, but they can be expensive. Taking steps to improve your credit before car shopping can lessen some of the financial burden.
If you’re unable to delay your car purchase, consider buying a lower-priced, but reliable, used vehicle that meets your needs but requires you to borrow less. As you pay down your loan and work on improving your credit, you may be able to refinance your auto loan for a better rate down the road.
Struggling to find an auto loan?Explore Auto Loans Now
About the author: Rebecca Giantonio Moran is a managing editor at Credit Karma. She has more than 20 years of experience in brand development, content and website strategy, copywriting, marketing and public relations. Throughout her ca… Read more.
