If you have a low credit score you may be worried that you won’t get approved for a car loan from a traditional lender. But before settling for a loan through a buy-here-pay-here dealer, consider researching all your options.
Although having bad credit — a credit score between 300 and 500 — can make getting a car loan more challenging, it isn’t impossible. Plus, you’ll find that borrowing costs are far lower with a bank, credit union or online lender, regardless of your credit score.
Steps to get a car loan with bad credit
Prepare on several fronts before you start the process of applying for an auto loan with bad credit. Pay special attention to your credit score and be sure all terms are finalized before the purchase goes through.
1. Know your credit score
Before you begin the shopping process, check your credit score. According to the FICO credit scoring system, which ranges from 300 to 850, any score that falls below 580 is considered poor.
Your FICO score is calculated based on factors like how much you owe, the length of your credit history and your payment history. Not making your payments on time, consistently spending more than your available monthly credit and having a short credit history can all negatively impact your credit score.
Before applying for an auto loan, avoid opening new credit cards or loans. Making efforts to repair your credit score before you begin shopping will put you in a more favorable position with lenders.
2. Save for a down payment
If you have a lower credit score, making a down payment on a car can increase your chances of securing and getting approved for an auto loan.
Setting aside some extra cash each month for a down payment can also offset higher interest rates caused by a less-than-stellar credit score and can lower your loan-to-value ratio, helping you qualify for better terms.
Experts recommend a down payment of at least 20 percent, but if that’s too much, just put down what you can afford. You may find that some dealers who work with credit-challenged customers will accept a down payment as low as $1,000.
Prepare as much as possible so you’re not caught off guard when the time comes to negotiate. Before you apply for a loan, know what monthly loan payment you can afford and what APRs are common among auto lenders. With a bad credit score, you’ll likely be offered some of the highest advertised rates.
If you’re buying used, it also helps to know the Kelley Blue Book value of your preferred car.
4. Shop around
Once you begin the shopping process, don’t limit yourself to just one lender. There are a variety of lenders that can help you secure a loan, including:
- Banks and credit unions: If you already have a relationship with a bank or credit union, start here. Some banks and credit unions offer discounted rates for members.
- Online lenders: Many online lenders offer a prequalification tool on their websites, which allows you to see what terms you might be eligible for before applying. This can save you a hard credit check if you don’t meet the requirements.
- Car dealerships: You can finance your car through a dealership if you meet the financial and credit criteria. You’ll meet with a finance department representative, and they will send your information to different lenders. Some dealerships may also offer programs for borrowers with a bad credit history. However, dealerships often mark up the rates they offer to make more money off the deal.
- Buy-here, pay-here dealerships: Buy-here, pay-here dealerships can be useful if you don’t get approved by a bank or lender for a loan, but be cautious. While these dealerships may be more likely to approve someone with bad credit for a loan, the interest rates can be much higher.
Lenders run a hard credit check during the application process. It’s wise to consider at least three different lenders in a 14-day period so your credit score doesn’t take multiple hits.
5. Prequalify with lenders
Prequalification lets you see if you’re eligible for a loan before you apply and view estimated loan terms. Plus, you’ll save time in applications and avoid unnecessary hard credit checks that can negatively impact your credit score.
Once you’re pre-qualified with a few lenders, you can submit documentation and get preapproved. It’ll result in a hard credit check, but a preapproved auto loan holds more weight as it represents the lender’s commitment to extend an auto loan to you. You’ll also have leverage when walking into the dealership and can negotiate like a cash buyer.
6. Be sure the terms are final
6. Avoid subprime lenders
Subprime lenders can seem like a sure bet to anyone wondering how to get a car loan with bad credit. These lenders usually cater to customers with lower credit scores and can make the car buying process seem easy and stress-free — at first. But subprime car loans can come with sky-high interest rates and can mean paying thousands of dollars extra in interest over the life of the loan.
Only consider subprime lenders if you cannot find another financing option.
7. Shop loan terms, not monthly payments
Lower monthly payments look good on paper and are usually used to entice buyers. They may lead to you paying more for your car over the life of the loan since they come with longer terms. Because car loans for bad credit have higher APRs, you may end up paying thousands more than the car’s full value by the end of the loan because of interest accumulation.
When you’re shopping, look for the most favorable terms — usually the lowest APR over the shortest period. That way, you will have more manageable monthly payments with reasonable interest rates. If you cannot find a low APR, consider shopping for a different vehicle.
8. Bring a friend with you — and consider a co-signer
Ask a friend or a relative to go with you, says Massachusetts-based consumer attorney Yvonne Rosmarin. Bringing someone you trust to the negotiating table can help inspire confidence. And confidence, combined with knowledge, can lead to more favorable loan terms.
Consider asking a trusted friend or family member to be a co-signer. Ideally, this individual should have a steady source of income, a strong credit score and an exceptional credit history.
Co-signers reduce much of the risk for lenders — because the co-signer is responsible for the loan should you default on your payments. Adding a co-signer can be a strong negotiating tool and usually results in a lower interest rate.
9. Look out for add-ons and scams
Nonprime buyers are more likely to encounter lending contracts with nonessential goods and services, says Josh Frank, former senior researcher for the Center for Responsible Lending. Other costs, such as car insurance rates, can pile up for nonprime buyers.
Never agree to a loan that’s contingent on purchasing any add-on, such as extended warranties, after-market services or car insurance. Be aware of these add-ons, especially if you need to apply at a buy-here, pay-here dealership or you plan to trade in your vehicle. And understand that rolling these costs into your loan means you’ll pay more interest over the loan term.
10. Be sure the terms are final
If you finance through a dealer, always ensure the terms are final before signing. If you don’t, you may face higher monthly payments.
Some shady dealers tell car buyers their financing is not complete well after the customer finalizes the purchase, and they must accept a higher interest rate or return the car. This is called yo-yo financing.
Where to find a bad credit car loan
Car loans are available through most banks, credit unions and online lenders. You can also use dealership financing, as discussed above. But if you have bad credit, you’re more likely to get a loan with reasonable terms through an online lender.
Some credit unions will also approve you for a bad credit car loan if you have a good history with their institution.
Check out Bankrate’s picks for the best bad credit auto loans to explore options.
Bad credit car loan APRs
Borrowers with good or excellent credit get the most competitive auto loan offers. That doesn’t mean you’ll automatically have fewer options if your credit score is lower. However, your borrowing costs will likely be much higher due to the risk you pose to the lender.
Here’s a breakdown of the current average interest rates by credit rating from Experian’s State of the Market report for the fourth quarter of 2022:
|Credit score range||New car||Used car|
|Deep Subprime: 300 to 500||13.42%||20.62%|
|Subprime: 501 to 600||10.79%||17.46%|
|Near Prime: 601 to 660||8.12%||12.08%|
|Prime: 661 to 780||5.82%||7.83%|
|Super Prime: 781 to 850||4.75%||5.99%|
If you have bad credit, it may be tougher for you to get a car loan. You may face less favorable terms or even predatory lending practices.
The good news is that conducting research, saving up for a down payment and getting preapproved help you prepare to get the best deal on an auto loan.
If you find a loan that’s right for you, make timely payments to help boost your credit score. At that point, consider refinancing; you might find a loan with even better terms.
- Current auto loan rates
- How to buy a new car: 12 tips to get the best deal
- How much car can I afford?
- Get Preapproved With Your Bank Or Credit Union. ...
- Avoid 'Buy Here, Pay Here' Deals. ...
- Co-sign Your Loan With Someone Who Has Good Credit. ...
- Put More Money Down. ...
- Consider Less-Expensive Cars. ...
- Negotiate On Price. ...
- Consider Multiple Offers. ...
- Look For A Second Chance Loan.
And, yes, if you are in that 500–600 credit score range, obtaining the financing to buy a car is doable. Even a small percentage of individuals with deep subprime credit scores – 500 or below – obtained auto financing in 2021.Which car company is best for bad credit? ›
- #1 myAutoloan: Best Bad Credit Online Marketplace.
- #2 Capital One Auto Finance: Best Bank for Bad Credit.
- #3 Auto Credit Express: Best Customer Ratings.
In general, you'll need a credit score of at least 600 to qualify for a traditional auto loan, but the minimum credit score required to finance a car loan varies by lender. If your credit score falls into the subprime category, you may need to look for a bad credit car loan.How can I raise my credit score 100 points in 30 days? ›
- Lower your credit utilization rate. The fastest way to get a credit score boost is to lower the amount of revolving debt (which is generally credit cards) you're carrying. ...
- Ask for late payment forgiveness. ...
- Dispute inaccurate information on your credit reports. ...
- Add utility and phone payments to your credit report.
In some cases, you may even find opportunities to buy a car with 0% APR loans, or interest-free car loans. If your score is closer to the bottom of the spectrum, particularly if it falls into the 300-500 range, you may find yourself facing much higher APR interest rates, some as high as 12% or even 20%.What is the lowest credit score Toyota will finance? ›
Toyota financing options
But even with a credit score as low as 610, you may be approved for a Toyota car loan.
Can I Finance a Car with a 200 Credit Score? There is no minimum Credit Score for securing a loan of any kind, including Car Finance. A score as low as 200 will impact the charges and interest (APR) you'll be offered on you loan, however.Can I get a car with 200 credit score? ›
Your credit score is always important when applying for new loans, but when it comes to buying a car, there is no minimum score needed to be approved.Who is the easiest car company to get financing? ›
- Auto Credit Express. 4.9 /5.0 Stars. ...
- Car.Loan.com Auto Loan. 4.5 /5.0 Stars. ...
- myAutoloan.com. 3.9 /5.0 Stars. ...
- Carvana. ...
- Capital One Auto Finance. ...
- Credit Acceptance. ...
- DriveTime. ...
Most car dealerships use the FICO Score 8 scale to determine your eligibility for a loan. The FICO score is the most widely used because it is considered to be the most accurate assessment of your credit standing. It takes the scores of all three major credit bureaus to create a FICO score.What credit does Carvana require? ›
Oftentimes, these lenders prefer customers that have a credit score of 700 or higher, or at least in the mid 600s. Carvana does not have a minimum credit score requirement and considers many factors, in addition to traditional credit score, in determining credit offers.Can I get a car with 515 credit score? ›
People with credit scores below 540 receive less than 7% of all auto loans. As a result, your odds of getting approved for a decent car loan are slim. You will need to compare your options carefully and consider either placing a bigger down payment or purchasing a vehicle that's less expensive.What do banks look at when applying for a car loan? ›
Lenders should assess your income, assets, employment, credit history and monthly expenses to determine that you're able to pay back the loan. When you're applying for your loan, you'll want to take copies of your pay stubs from the last month, showing the total of what you've been paid year to date.What credit score is needed to buy a car with no down payment? ›
Purchasing a car with no money down might sound too good to be true, but many dealers, banks, and credit unions allow you to do that just. All you need is good credit and verification that you earn enough to pay back the loan. In general, you'll need a FICO score of at least 700 to qualify.How long does it take for credit to move 200 points? ›
It may take anywhere from six months to a few years to raise your score by 200 points. As long as you stick to your credit-rebuilding plan and stay patient, you'll be able to increase your credit score before you know it.How can I raise my credit score 500 points fast? ›
- Pay Your Bills on Time. Payment history is an important factor in calculating your credit scores. ...
- Maintain a Low Credit Utilization Ratio. ...
- Consider a Secured Credit Card. ...
- Look Into Credit Counseling.
To raise your credit score by 50 points, you can dispute errors on your credit report, pay your bills on time and lower your credit utilization. Credit scores rise and fall based on the contents of your credit report, so adding positive information to your report will offset negative entries and increase your score.How can I clean my credit report fast? ›
- Request your credit reports.
- Review your credit reports.
- Dispute all errors.
- Lower your credit utilization.
- Try to remove late payments.
- Tackle outstanding bills.
Factors that contribute to a higher credit score include a history of on-time payments, low balances on your credit cards, a mix of different credit card and loan accounts, older credit accounts, and minimal inquiries for new credit.
If you take a car loan of $40000 at an interest rate of 4.12% for a loan term of 72 months, then using an auto loan calculator, you can find that your monthly payment should be $628. When the loan term changes to 60 months, the monthly payment on a $40000 car loan will be $738.83.Can I lease a car with a 480 credit score? ›
Dealers treat customers with good credit scores to better interest rates — and if you have too low a score, they may not lease to you at all. The credit score required to lease a car varies from dealership to dealership. Experian says a prime score is 661 to 780.Is it hard to get approved for Toyota Financing? ›
Luckily, it isn't incredibly difficult to qualify for a Toyota loan. In fact, you only need a credit score of 610 to qualify. You should understand, however, that your credit score will determine how much you pay for interest on a loan unless you have a score above 690.Is it better to finance through Toyota or the bank? ›
The primary benefit of going directly to your bank or credit union is that you will likely receive lower interest rates. Dealers tend to have higher interest rates, because dealers add a markup to the interest rate when they connect you with a lender.Can I finance a car with 520 credit score? ›
There is no set credit score you need to get an auto loan. If you have a credit score above 660, you will likely qualify for an auto loan at a rate below 10% APR. If you have bad credit or no credit, you could still qualify for a car loan, but you should expect to pay more.Why can't I get accepted for car finance? ›
Why have I been refused car finance? If you've been refused car finance, a bad credit score could most likely be the reason. Finance companies use factors like your credit score and history to determine whether they'll lend to you. So, you may be refused car finance if your credit score is low or in poor shape.What is a fair credit score to buy a car? ›
What Is the Minimum Score Needed to Buy a Car? In general, lenders look for borrowers in the prime range or better, so you will need a score of 661 or higher to qualify for most conventional car loans.Does DriveTime approve everyone? ›
Do you approve everyone? Yes! Everyone is approved at DriveTime. Start your easy, online approval today and know your down payment before you shop, or call our approvals line at 888-418-1212.How to buy a car without credit? ›
- Get a Cosigner. If you have a family member or friend with a great credit history who is willing to cosign your loan application, that can help you get approved with a lower rate. ...
- Make a Large Down Payment. ...
- Apply for a No-Credit Auto Loan.
Credit scores are three-digit numbers that show an important piece of your financial history. Credit scores help lenders decide whether to grant you credit. The average credit score in the United States is 698, based on VantageScore® data from February 2021. It's a myth that you only have one credit score.
- Check your credit score before you go to the dealership. ...
- If your credit score isn't perfect, get financing quotes before you go. ...
- Keep the term as short as you can afford. ...
- Put 20% down. ...
- Pay for sales tax, fees, and “extras” with cash. ...
- Don't fall for the gap insurance speech.
- Best Overall: PenFed Credit Union.
- Best Online Auto Loan: LightStream.
- Best Bank for Auto Loans: Bank of America.
- Best Credit Union for Auto Loans: Consumers Credit Union.
- Best for Used Cars: Chase Auto.
- Best for Bad Credit: myAutoloan.
- Best for Refinance: AUTOPAY.
- Best for Fair Credit: Carvana.
The answer is yes, having a job is not a requirement to get an auto loan. However, it's usually more difficult to get approved if you aren't working. There are some workarounds, like making a bigger down payment and having good credit, that can help you get approved for a loan when you're unemployed.How accurate is credit karma? ›
Here's the short answer: The credit scores and reports you see on Credit Karma come directly from TransUnion and Equifax, two of the three major consumer credit bureaus. The credit scores and reports you see on Credit Karma should accurately reflect your credit information as reported by those bureaus.What credit score does Ford use? ›
According to Ford Motor Credit, applicants should have a credit score of at least 650 to qualify. However, Ewald Venus Ford is willing to work with all customers to ensure they walk away from our Ford dealer near you with a vehicle that works for them.How fast will a car loan raise my credit score? ›
Every payment you make towards your loan is reported back to each credit bureau. When you make a timely payment to your auto loan each month, you'll see a boost in your score at key milestones like six months, one year, and eighteen months.Does CarMax check credit? ›
CarMax's pre-qualification process uses soft credit inquiries and won't impact your credit. When you browse our car inventory with your pre-qualification, you'll see personalized terms on CarMax vehicles, including APR, monthly payment, and down payment requirement.Does everyone qualify for Carvana? ›
As long as you are 18 years or older*, make at least $4k per year, and have no active bankruptcies, you can finance your purchase through Carvana. To get started, you can fill out the financing application here. Don't worry, filling out the application will not impact your credit!Does Carvana require a down payment? ›
If you are within Carvana's delivery area and choose to accept the vehicle, your down payment is due at the time of delivery. We may need to verify that the funds are in your bank account prior to approval. If this is required, we will reach out and communicate this to you.Can I get approved for a car loan with a 530 credit score? ›
While it may seem daunting to qualify for a car loan with a bad credit score (below 580), there is a large network of lenders and car dealers who are more willing to work with low- and bad-credit score borrowers. If all goes well and payments are made on time, it can help boost your credit profile.
In terms of credit cards, the rejection rate stands at 14.4%.What are 4 things to consider before getting an auto loan? ›
- Know The Total Loan Cost. ...
- Know Your Loan Eligibility Beforehand. ...
- Research For Interest Rates. ...
- Know The Length of The Loan. ...
- Finance According to Your Ability. ...
- Clear Off Your Outstanding Debts. ...
- Research the Best Financing Option. ...
- Get Your Down Payment Ready.
Why was I denied a car loan? Lenders frequently reject applicants because of credit score, credit history and overall debt.How do banks verify income for auto loan? ›
To verify your income for an auto loan, you may only need to provide your lender with your latest W-2 or one or two recent pay stubs. Be aware that lenders may call your employer to verify that you are currently employed with them. In this case, it may also be helpful to provide a copy of your employment agreement.Can I get a car with a 500 credit score? ›
And, yes, if you are in that 500–600 credit score range, obtaining the financing to buy a car is doable. Even a small percentage of individuals with deep subprime credit scores – 500 or below – obtained auto financing in 2021.What is the minimum down payment for a car? ›
As a general rule, you will have to pay a minimum of 10% of the car value as a down payment. Some lenders/banks offer car loans up to 90% of the on-road price.How much downpayment should I put on a car? ›
How much should I put down on a car? It's a good idea to make a down payment of 10 to 20 percent. However, generally speaking, the more you can put down, the less interest you'll pay in the long run. The trick is to balance what you would like to pay with what you can reasonably afford.How hard is it to finance a car with bad credit? ›
In most cases, having bad credit won't prevent you from finding a car loan. But you'll likely pay more — through higher interest rates and fees — than a borrower with good credit.What is a good credit score to buy a car with no down payment? ›
Generally speaking, banks require a minimum credit score of 600 to give an auto loan without any down payment. However, you CAN buy a car with a score of 400 or a score of 850. There are a lot of variables that weigh into determining your loan eligibility and interest rates available.Is it easier to finance a new or used car with bad credit? ›
Used cars will cost less, so you'll have more options, making them a great choice if you have bad credit. Another benefit of financing a used vs. new car with bad credit is that your monthly payment will also be lower. This makes the loan payments more manageable for you as you work to build up your credit score.
You can upload your 2 most recent, consecutive pay stubs for your proof of income or address verification. We may also look at pay stubs as part of your employment verification. Some customers may be required to upload additional income documents when placing an order.What's the easiest car finance to get? ›
- Auto Credit Express. 4.9 /5.0 Stars. ...
- Car.Loan.com Auto Loan. 4.5 /5.0 Stars. ...
- myAutoloan.com. 3.9 /5.0 Stars. ...
- Carvana. ...
- Capital One Auto Finance. ...
- Credit Acceptance. ...
- DriveTime. ...
The primary benefit of going directly to your bank or credit union is that you will likely receive lower interest rates. Dealers tend to have higher interest rates, because dealers add a markup to the interest rate when they connect you with a lender.What are 3 ways to finance a car? ›
You can choose to finance a car through a bank, dealership, credit union, or any private lender.Which FICO score do auto lenders use? ›
Instead of the traditional 300-850 credit score range, FICO® Auto Scores feature a scale of 250-900.What are the monthly payments on a $20000 car loan? ›
The monthly payment on a $20000 car loan depends mainly on the loan term or the time taken for repayment and APR (Annual Percentage Rate). For example, if the loan term is 36 months and the APR is 4.12%, then the monthly payment will be around $591. If the loan term is 48 months, the monthly payment decreases to $452.How much should you put down on a 25000 car? ›
A down payment between 10 to 20 percent of the vehicle price is the general recommendation. But if you can afford a larger down payment, you can save even more money on interest payments over the life of the loan.What is a good downpayment on a 30K car? ›
As a general rule of thumb, it's recommended that you put down at least 20% on a new vehicle, and at least 10% on a used car. Depending on the car's selling price, this could mean shelling out quite a bit of cash. Down payment examples for new cars.