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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 offering interactive tools and financial calculators that provide objective and original content, by enabling you to conduct research and compare information at no cost - so that you can make informed financial decisions. Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Profit The offers that appear on this site are from companies that pay us. This compensation may impact how and when products appear on this website, for example such things as the sequence in which they appear within the listing categories, except where prohibited by law for our mortgage, home equity and other home loan products. But this compensation does have no impact on the information we publish, or the reviews that you read on this site. We do not contain the vast array of companies or financial offerings that could be accessible to you. Anna Kraynova/Getty Images
6 minutes read Read Published March 02, 2023
Written by Hanneh Bareham Written by Student loans reporter Hanneh Bareham is a specialist in all things connected to student and personal loans and can help you finance your next endeavor. She strives to help others reach their collegiate and financial goals by making loans simpler to comprehend. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has written and edited for Bankrate since late 2021. They are dedicated to helping readers gain the confidence to control their finances through providing concise, well-studied information that breaks down complicated topics into manageable bites. The Bankrate guarantee
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who ensure everything we publish ensures that everything we publish is accurate, objective and reliable. The loans journalists and editors are focused on the things that consumers are interested about most -- the different kinds of loans available and the most competitive rates, the best lenders, the best ways to pay off debt and many more. So you'll feel safe investing your money. Integrity in editing
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If you have questions about money. Bankrate has the answers. Our experts have been helping you master your money for over four years. We continually strive to provide our readers with the professional advice and tools needed to be successful throughout their financial journey. Bankrate adheres to strict standards policy, which means you can be confident that our content is truthful and accurate. Our award-winning editors and reporters provide honest and trustworthy content to help you make the right financial decisions. The content created by our editorial staff is objective, factual and uninfluenced from our advertising. We're open about how we are able to bring quality content, competitive rates, and helpful tools for you by explaining how we earn money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for the promotion of sponsored goods and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may influence the manner, place and in what order products are listed in the event that they are not permitted by law for our mortgage home equity, mortgage and other home lending products. Other elements, such as our own rules for our website and whether the product is offered in the area you reside in or is within your personal credit score could also affect the way and place products are listed on this website. We strive to provide a wide range offers, Bankrate does not include information about every credit or financial product or service. If you have a poor credit score you may be concerned about whether you will get approved for a car loan from a traditional lender. However, before you take out a loan via a buy-here, pay-here dealer think about researching all possible possibilities. Although you may have bad credit -- a credit score that is between 300 and 500 -- could make getting a loan more difficult, it's not difficult. Plus, you'll find that the costs of borrowing are lower when you use a bank credit union, or online lender, whatever your credit scores. How to apply for an auto loan for those with bad credit Prepare on several areas prior to starting the process of applying to get an automobile loan for those with bad credit. Take note of your credit score and be sure all terms are finalized prior to making the purchase. 1. Check your credit score before you begin shopping Check the credit scores of your customers. According to the FICO credit scoring system which ranges from 300 to 850, any score that falls below 580 is considered poor. It is important to know that your FICO score can be determined on the basis of things like the amount you owe as well as the duration of credit histories and how often you pay. Inability to pay on time, consistently overspending your monthly credit, and having a short credit history could all negatively impact the credit score. Tips from Bankrate
When you apply to get an auto loan make sure you do not open any new credit card or loans. Making efforts to before you begin shopping can put you in a favorable position with lenders.
2. Set aside money for a downpayment If you're not able to pay a down payment credit score, an automobile can boost the chances of being accepted for an automobile loan. Setting aside some extra cash every month to pay for a down payment could also offset higher interest rates caused by poor credit scores and can lower your loan-to-value ratio, helping you be eligible for better conditions. Experts recommend a down payment of at least 20 percent however if that's just too much, just pay what you are able to afford. You may find that some dealers who deal with credit-challenged customers will accept as little as $1,000. 3. Research 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 what APRs are common among auto lenders. With the bad credit score, you'll likely be offered some of the highest advertised rates. If you're purchasing a used car it is also helpful to understand the features of the car you want to purchase. 4. Start looking around. Once you've started your search Don't be limited to just one lender. There are numerous lenders who can help you obtain an loan, including: Banks as well as credit unions. If already have a relationship with a bank or credit union, begin here. Certain credit unions and banks offer discounted rates for members. Online lenders: A lot of online lenders provide a prequalification tool on their websites, which lets you know the terms you may be eligible for prior to applying. This will save you from having the hassle of a credit check in the event that you do not meet the requirements. Dealerships for cars: You may qualify apply for credit if you meet the financial and credit guidelines. You'll talk to an official from the finance department and they'll forward your information to several lenders. Some dealers may also offer programs for people with bad credit history. However, they typically mark up rates they offer to make more money on the deal. Pay-here and buy-here dealers Pay-here and Buy-here dealers are useful when you aren't accepted by a bank or lender to get the loan however, be careful. While these dealerships may be most likely to grant approval to an applicant with , the interest rates could be higher. Bankrate tip
The lender will conduct a hard credit check during the application process. It's wise to consider at least three different lenders within a 14-day timeframe so your credit score doesn't be hit by multiple slaps.
5. Prequalify with lenders. Prequalification lets you see whether you're qualified for a loan before you apply and view estimates of loan terms. Plus, you'll save time when applying and avoid unnecessary hard credit checks that can adversely affect the credit rating. When you're prequalified with a few lenders, you can submit documents and be preapproved. It'll result in a hard credit report, however the loan holds more weight as it demonstrates the lender's willingness to extend an auto loan to you. Also, you'll be able to leverage yourself when you enter the dealership and can negotiate like cash buyers. 6. Be sure the terms are final. Avoid subprime lending Subprime lenders could appear to be a safe bet to anyone wondering how to get a car loan that has bad credit. These lenders usually cater to people with low credit scores and can make the process of buying a car seem easy and stress-free -- at first. But they may come with astronomically high interest rates and can mean the payment of thousands of dollars on interest for the duration of the loan. Bankrate tip
Do not consider subprime lenders in the event that you do not have another financing option.
7. Shop loan terms are not monthly payments. Lower monthly payments appear attractive on paper, and are often used to lure buyers. They can result in spending more on your car over the course of the loan since they . Since cars with loans for bad credit have higher APRs they could result in paying thousands more than the car's worth by the close of the loan because of the interest accrual. When you're shopping for a loan, you should look for the best conditions -- typically that have the lowest rate for the shortest amount of time. That way, you will be able to make more affordable monthly payments with reasonable interest rates. If you cannot locate a lower APR, consider shopping for another vehicle. 8. Take a friend along and think about a co-signer Ask someone you know or a family member to accompany you, says Massachusetts-based consumer lawyer Yvonne Rosmarin. A trusted friend or relative at the negotiation table can create confidence. In turn, confidence, coupled with knowledge, may help you negotiate better loan terms. Think about asking a trusted relative or partner to be a . Ideally, this individual has a steady earnings source, strong credit score and an exceptional credit background. Co-signers reduce much of the risk for lenders -- because the co-signer is responsible for the loan should you default on your payments. The addition of a co-signer a and usually results in a lower interest rate. 9. Watch out for add-ons or scams . Buyers who are not prime tend to be more susceptible to loan contracts that don't include any essential items and services, says Josh Frank, former senior researcher for the Center for Responsible Lending. Other costs, such as the cost of insurance, can be a major issue for buyers who are not prime. Do not sign up for a loan that is contingent upon certain things, like extended warranties, after-market service or . Pay attention to these extras, especially if you need to apply to a buy-here, pay-here dealership or plan to trade in your vehicle. And understand that rolling these costs into the loan will mean you'll have to pay more interest over the loan period. 10. Check that the terms are in place if you finance through a dealer, always be sure that the terms are final prior to signing. If you don't, you could have to pay more for your monthly payments. Some shady dealers tell car buyers that their financing may not be completed until the buyer has completed the purchase and they have to accept an interest rate that is higher or even return the vehicle. This is called . Where can I find the bad credit car loan Car loans are offered through a variety of banks, credit unions and online lenders. Dealership financing, as mentioned above. However, if you've got bad credit, you're more likely to be able to secure a loan with reasonable terms through an online lender. Certain credit unions may accept the bad credit car loan if you have a positive history with their organization. Find out which Bankrate's choices are the best to explore options. Credit-worthy car loan APRs Borrowers with good or excellent credit get the most competitive auto loan offers. However, that doesn't mean you'll be denied loans when you have a credit score less. However, your borrowing costs are likely to be higher due to the risk that you take on the lender. Here's a breakdown of the current interest rates for the average credit rating from for the fourth quarter of 2022 The credit score range
New car
Used car
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 tougher for you to obtain a car loan. There could be more favorable terms, or unfair lending practices. It's good to know that conducting research, saving up for a downpayment and getting preapproved will help in getting the most favorable rate for an automobile loan. If this is the loan for you, be sure to make punctual payments to improve your score on credit. Then, you might find an 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 can assist you in financing your next endeavor. She is determined to assist students achieve their college and financial goals through making loans more understandable. Written 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 take control of their finances through providing precise, well-researched and thorough information that break down complex subjects into bite-sized pieces.
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