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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 mission is to help you make smarter financial decisions by offering financial calculators and tools that are interactive as well as publishing original and impartial content. We also allow users to conduct research and compare data for free - so that you can make informed financial decisions. Bankrate has agreements with issuers including, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this website are provided by companies that pay us. This compensation can affect the way and when products appear on this website, for example for instance, the order in which they be listed within the categories of listing in the event that they are not permitted by law for our mortgage or home equity products, as well as other products for home loans. However, this compensation will not influence the content we publish or the reviews that you read on this site. We do not contain the universe of companies or financial offerings that could 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 a specialist in all things connected to student and personal loans and helping you fund your next venture. She strives to help people achieve their collegiate and financial goals through making loans more understandable. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are committed to helping readers gain the confidence to control their finances through providing concise, well-studied information that breaks down complex subjects into bite-sized pieces. The Bankrate promise
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At Bankrate we are committed to helping you make smarter financial decisions. We are committed to maintaining strict editorial integrity ,
this post may contain the mention of products made by our partners. Here's how we earn money . The Bankrate promise
Established in 1976, Bankrate has a long record of helping people make smart financial choices.
We've earned this name for over four decades by making financial decisions easy to understand
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So you can be sure that we're putting your interests first. Our content is written by and edited by ,
who ensure everything we publish is objective, accurate and trustworthy. We have loans reporter and editor are focused on the things that consumers are interested about most -- various types of loans available and the most competitive rates, the most reliable lenders, how to pay off debt and more . This means you can feel confident when making a decision about your investment. Editorial integrity
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If you have questions about money. Bankrate has the answers. Our experts have helped you understand your finances for more than four years. We continually strive to provide consumers with the expert advice and tools needed to make it through life's financial journey. Bankrate follows a strict , so you can trust that our information is trustworthy and accurate. Our award-winning editors, reporters and editors create honest and accurate content that will help you make the right financial decisions. The content created by our editorial team is objective, factual and is not influenced through our sponsors. We're transparent about the ways we're able to bring quality content, competitive rates, and useful tools to 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 promotion of sponsored goods and services or through you clicking certain links posted on our website. This compensation could influence the manner, place and in what order products appear within listing categories in the event that they are not permitted by law. We also offer mortgage, home equity and other products for home loans. Other elements, such as our own proprietary website rules and whether a product is available in the area you reside in or is within your self-selected credit score range could also affect the manner in which products appear on this website. Although we try to offer a wide range offers, Bankrate does not include details about every financial or credit item or product. If you have a low credit score, you may be concerned about whether you will be approved for an auto loan from an established lender. However, before you take out a loan through a dealer who buys-here-pay-here take a look at all of possible possibilities. Even though having bad credit -- a credit score that is between 300-500 can make getting a more challenging, it isn't impossible. Plus, you'll find that the cost of borrowing is much lower when you use a bank credit union, or online lender, whatever your credit scores. The steps to obtain a car loan that are based on bad credit Prepare on several fronts before you start the application process for an auto loan for those with bad credit. Take note of your credit score and be certain that all terms are in place prior to the purchase. 1. Check your credit score before you start shopping, check your credit score. According to the FICO credit scoring system which ranges from 300 to 850, any score that falls less than 580 is considered as poor. Your FICO score will be calculated on the basis of factors such as how much you owe, the duration of credit histories and how often you pay. Inability to pay on time, regularly using more credit than you have available monthly credit and having a bad credit history can all affect the score of your credit. Tips from Bankrate
Before you apply to get an auto loan be sure to avoid opening new credit cards or loans. Be sure to do this prior to when you start shopping puts you in a favorable situation with the lender.
2. Save for a down payment If you have a less than stellar credit score, getting a car can increase your chances of securing and being granted the auto loan. Setting aside some extra cash every month for a down payment can also offset higher interest rates resulting from having a low credit score. It also could reduce your loan-to value ratio, which can help you get more favorable terms. The experts recommend a down payment that is at least 20 percent, but if that's too much, make a payment that you can afford. You may find that some dealers that work with credit-challenged customers will accept a down payment as low as $1,000. 3. Research Prepare as much as possible so you're not surprised when it's time to negotiate. Before you submit an application for a loan be aware of what APRs are common among auto lenders. With the bad credit score, you'll likely receive the highest rates advertised. If you're purchasing used, it also helps to know the of your preferred car. 4. Start looking around. Once you've started the shopping process, don't limit yourself to a single lender. There are many lenders that can assist you to obtain the loan, including: Banks or credit unions already have relationships with a financial institution or credit union begin by looking here. Some banks and credit unions offer discounted rates for members. Online lenders: Many online lenders provide a prequalification tool on their sites, which lets you know the terms you may be eligible for prior to submitting an application. This can save you a hard credit check in the event that you do not meet the standards. Car dealerships: You can apply for credit if you meet the financial and credit guidelines. You'll meet with an agent from the finance department, and they'll forward your details to various lenders. Some dealerships may offer loans to those with bad credit history. However, they typically mark up rates they offer in order to earn more money from the deal. Buy-here, pay-here dealerships Pay-here and Buy-here dealers are useful when you don't get accepted by banks or lender to get the loan however, you should be wary. While these dealerships may be more likely to approve someone with , the interest rates can be much higher. Bankrate tip
They conduct an examination of your credit during the application process. It's wise to consider at least three different lenders within a 14-day timeframe to ensure that your credit score doesn't suffer multiple blows.
5. Prequalify with lenders. Prequalification allows you to determine whether you're qualified for a loan prior to applying and view the estimated loan terms. Additionally, you'll be able to save time when applying and avoid unnecessary hard credit checks that can adversely affect the credit rating. When you're prequalified with some lenders, you'll be able to submit documents and be approved. It'll result in a hard credit check, but an auto loan has more weight because it represents the lender's commitment to extend an auto loan to you. Additionally, you'll have leverage when walking into the dealership, and you can negotiate as cash buyers. 6. Check that the terms are final. Avoid subprime lenders Subprime lenders may seem like a good choice for those who are trying to secure a car loan that has bad credit. They usually target customers with lower credit scores and can make the process of buying a car seem effortless and easyinitially. But they may come with astronomically high rates of interest and could mean paying thousands of dollars extra to pay interest throughout the duration of the loan. Tips for banks
Only consider subprime lenders if you cannot find another financing option.
7. Shop loan terms do not include monthly payments. monthly payments look good on paper and are typically used to entice buyers. They could result in you spending more on your car over the course of the loan because they . Since the car loans specifically designed for bad credit have higher APRs they could result in paying thousands more than your 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 most favorable terms -- usually that have the lowest rate for the shortest time. This way, you'll 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. Bring a companion along -- and consider a co-signer Ask someone you know or a family member to join you, according to Massachusetts-based consumer attorney Yvonne Rosmarin. A trusted friend or relative at the negotiating table can help create confidence. And confidence, combined with knowledge, could result in more favorable loan terms. Think about asking a trusted person in your family or friend to be a . Ideally, the person must have a stable earnings source, high credit score, and a stellar credit background. Co-signers reduce much of the risk for lenders -since the co-signer will be responsible for the loan in the event of a 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 lending contracts with nonessential goods and services, says Josh Frank, former senior researcher for the Center for Responsible Lending. Other expenses, like the cost of insurance, can be a major issue for those who aren't prime buyers. Don't sign any loan which is contingent on , such as extended warranties, after-market services or . Take note of such add-ons particularly if you're planning to apply to a buy-here, pay-here dealership or you are planning to trade in your vehicle. Be aware that incorporating these charges into the loan means you'll have to pay more in interest during the loan time. 10. Check that the terms are in place if you are financing with a broker, make sure to make sure the terms are in place before signing. If you don't do this, you could have to pay more for your monthly payments. Some dealers who are shady tell buyers that financing isn't fully completed until after the buyer has completed the purchase and they are required to pay 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 bank, credit unions and online lenders. You can also use dealership financing, as mentioned above. But if you have bad credit, you're more likely to obtain a loan with acceptable terms from an online lender. Some credit unions will also accept an bad credit car loan if you have a positive track record with their organization. Check out Bankrate's picks for the best options to consider. Credit-worthy car loan APRs Borrowers with good or excellent credit score get the most competitive auto loan deals. However, that doesn't mean you'll be denied loans when the credit rating is less. However, your costs for borrowing are likely to be more expensive because of the risk you pose to 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 300-500 500
13.42%
20.62%
Subprime: 501 to 600
10.79%
17.46%
Near Prime: 601 to 660
8.12%
12.08%
Prime: 661-780
5.82%
7.83%
Super Prime: 781 to 851
4.75%
5.99%
Next steps If you are a person with bad credit, it may be tougher for you to obtain an auto loan. There could be more favorable terms, or predatory lending practices. It's good to know that researching, saving for a down payment and getting preapproved help in getting the best price for an automobile loan. If you that's right for you, you should make prompt payments to improve the credit rating. Then, you may be eligible for the 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 help you finance your next venture. She is determined to assist students achieve their college and financial goals through making loans simpler to comprehend. Edited by Rhys Subitch Edited by Auto loans editor Rhys has written and edited for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances through providing concise, well-researched, and well-researched content that breaks down otherwise complex topics into digestible chunks.
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