How to Get a Car Loan with Bad Credit?

Nowadays, a car is essential for personal needs like going to school and getting to work. However, getting approved for a car loan can be difficult in times of economic downturns when it can be difficult to maintain a good credit score.

While qualifying for a car loan with a bad credit score may seem difficult, there are many lenders and car dealers who would be willing to work with borrowers who have low or bad credit scores. If you can make timely payments, it can help improve your overall credit rating.

Read on to learn how you can get a car loan even with a bad credit score, as well as the preparations you need, and the impact of the loan on your credit score.

What’s the Lowest Credit Score You Need to Get a Car Loan?

In general, your credit score must be 600 or higher to get approved for a traditional car loan. However, the minimum for car financing may vary, depending on the lender. If your credit score is classified under subprime, your best option may be to apply for bad credit car loans.

Can You Get Car Financing With a 500 Credit Score?

You can get a car loan even if your credit score is as low as 500. However, you will have to bear higher interest and financing charges. According to the Experian report on the State of the Car Finance Market, poor-credit borrowers are charged around 13% interest for new car loans on average. For used car loans, they are charged an average of around 20%.

Average APR on Car Loans by Credit Score

Credit Score
APR for New Car Loans (in %)
APR for Used Car Loans (in %)

300 to 500



501 to 600



601 to 660



661 to 780



781 to 850



Based on the table above, note that the lower the credit score, the higher the rates. This can translate to thousands of dollars in interest charges over the term of the car loan. This is why it is crucial that you get a direct offer from a lender. Car dealerships make money by jacking up your APR.

When looking for a lender, start with the bank you maintain an account with, online lenders, and credit unions. Compare all the offers you get from all sources to determine your best options.

5 Steps: How to Get a Car Loan With Bad Credit

We prepared a 5-step guide on how you can get a car loan with bad credit to make the process easy for you:

Step 1 - Check your credit rating.

Credit scores can quickly fluctuate - they can change in a matter of hours or days. Even if you’re currently aware that you have a low credit score, it is still best to know your exact score and check your report before filing a car loan application. This way, you correct possible errors on your report.

Step 2 - Prepare to make a down payment.

Paying for a sizable down payment can help you qualify for a car loan for bad credit faster. This is because it will lessen the risk on the part of the lender. This is also why many lenders require a down payment for car loans. The down payment will also lower the total interest you will shoulder over the loan term since the principal on which the interest is based, will be lower.

Some lenders will charge lower interest if you pay a down payment. To determine the interest to charge, some lenders consider the loan amount vs. the vehicle’s value.

Step 3 - Determine the amount of loan you can afford.

While a bigger loan will allow you to buy a better car, it would be counter-intuitive if you will be hard-pressed to keep up with your monthly payments. Ideally, you should determine the amount of money you can allot for the amortization of your loan monthly, without eating up your budget for other essentials like food, rent, and gas, among others. You can use an online loan calculator to compute the maximum amount of loan you can conveniently pay off.

Step 4 - Show proof of your ability to pay.

Lenders consider how long you've been with your current employer and lived at your current address, in addition to your income and debt information. This shows them that you are happy in your job and where you live.

Lenders use employment and residency to assess the risk you pose as a borrower. You may be required to provide proof of address, as well as several recent pay stubs to the lender.

Step 5 - Apply with various lenders.

It’s a given that car loans for poor credit are costlier than traditional loans. Thus, shopping for the best offer and lender is crucial, and settling for the first offer you get is never a good idea. What you should do is to apply with numerous lenders within a window of 2 weeks as this will only count as 1 inquiry on your credit records.

Getting approved by multiple lenders will allow you to compare and determine the best offer that will suit your budget and needs. Typically, banks, online lenders, and credit unions charge lower interest rates compared to car dealerships. And some dealerships would only offer to facilitate financing if you buy the car from them.

How to Increase Your Chances of Getting Approved for a Car Loan

If you’ve experienced rejections for your loan applications before, it may be a good idea to take the time to improve your credit first. However, if you’re in immediate need of a car loan, there are some things you can do:

  • Ask someone in good credit standing to co-sign for you. – This can be a trusted friend or relative. This is a guarantee that in case you default, the co-signer will pay back the loan.
  • Pay for the car in cash. – If feasible, just buy a used car in cash. It would only cost you the equivalent of a down payment for a new car. You also won’t have to go through a credit check this way.
  • Purchase from a private party, instead of a dealer. – It would usually be cheaper and more affordable to buy a used car from a private individual rather than a dealer.
  • Refrain from using credit for other purchases. – While in the process of obtaining car financing, do not use credit for other purchases like buying groceries or gasoline. Just pay in cash. Any additional debt you incur at this time will only negatively affect your credit.
  • Obtain a personal loan. – Some personal loans don’t consider your credit score. However, the interest may sometimes be as high or even higher than car loans for bad credit.

Additional Tips to Consider When Looking for Car Loans for Bad Credit

Following are more tips you can consider when getting car financing with a poor credit score:

  • Get pre-approved for a car loan with your bank or credit union. – They usually offer better terms compared to other lenders.
  • Consider putting up a big down payment. – Note that the bigger payment you put upfront, the lower the principal and the interest you will have to pay over the term of the loan.
  • Consider buying a less expensive car. – Just look for a car that meets all you basic needs. Additional features will only add up to the total cost.
  • Learn the art of negotiation. – Sometimes, it only takes good negotiation skills to get the seller to give you the car at a lower cost. In return, you may only be required to pay the car within a shorter period.
  • Obtain multiple offers. – Remember that the more offers you get, the more offers you can compare to get the most preferential rates.
  • Refinance your car loan later. – If possible, buy the car now, and look for refinancing after around six months.

Best Car Loans Providers for Bad Credit to Consider

Having a bad credit score shouldn’t stop you from buying a car. Following are some of the best car financing providers for people with poor credit:

Capital OneIdeal for Closed Loan Average APR

You can save time financing- and car-shopping through Carvana. An affiliate of Capital One, Carvana caters to borrowers with bad credit over 18 years old, have no less than $4,000 annual income, and no active bankruptcies on file.

New RoadsIdeal for Discounted Interest Rates

You can get discounted interest on some new and pre-owned cars from New Roads. Not only will you pay for lower interest rates, New Roads also doesn’t require a down payment.

iLendingDirectIdeal for Specialty Vehicles

The company has links to a wide network of lenders who can finance not only cars and trucks, but also specialty vehicles like motorcycles, boats, and RVs.

RoadLoansIdeal for Borrowers with Bankruptcies on File

While bankruptcies can affect your application with most lenders, this is not the case with RedLoans – as long as you have a discharged bankruptcy.

Final Verdict

While having a bad credit score can be discouraging if you intend to apply for a car loan, this shouldn’t prevent you from applying for one, if you really need a car. After all, there are car loans specifically for people with bad credit. Just follow the guide and tips we provided in this post that will allow you to obtain a car loan even if you have bad credit.

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