How to get auto loans for bad credit

Auto loans for bad credit

Many people use auto loans to finance their car purchases. This loan breaks the total cost into monthly payments you can make over several years. While auto loans make cars more accessible, lenders don’t give them to everyone. 

They will review your financial documents and check your credit score. Some people believe it’s impossible to get an auto loan with bad credit, but lenders make accommodations for some borrowers. We’ll share how to get auto loans even if you have bad credit.

What is an auto loan for bad credit?

An auto loan for bad credit is specifically for an aspiring car owner with bad credit. These loans often have higher interest rates since lenders incur more risk, but they are as notoriously high as payday and title loans. 

Lenders that offer bad credit auto loans

Several lenders offer bad credit auto loans. You can reach out to these lenders and compare rates to see which one works best for you.

Banks and credit unions

Most banks and credit unions require good credit scores to qualify for a loan. However, some institutions make exceptions for low credit users. Credit unions’ loans don’t get taxed on the state or federal level since they operate as nonprofits. 

Credit unions pass these savings onto consumers via lower interest rates. Banks and credit unions are the first entities to contact for an auto loan. These lenders offer the lowest interest rates and may overlook bad credit if you have other strengths, such as a good debt-to-income ratio.

Online loan marketplace

The online loan marketplace has higher interest rates but also more flexibility. Online lenders offer loans for consumers with poor credit. You can also get loan proceeds far quicker than through a bank or credit union. 

You can get approved for an online loan within 24 hours. If you can’t afford to wait for a bank or credit union or have already gotten your application rejected, the online loan marketplace is a great resource. 

The online loan marketplace provides great loans, but you have to be careful. Some will charge fees and higher interest rates, while others may be scams. 

Do your research before applying for a loan at one of these marketplaces. You can check Better Business Bureau, Consumer Financial Protection Bureau, and consumer reviews to determine if an online lender is trustworthy. 

Online car retailers

People have become comfortable with buying products through Amazon and other online retailers. Online car retailers like Carvana take this concept and apply it to cars. You can buy a car without seeing it and get a loan for it too. 

Consumers can choose from more cars since they’re not limited to a physical location. This approach to car buying isn’t for everyone. This financing option can work if you’re fine with making a decision based on details from an online listing.  

Car dealerships

Car dealerships are the last alternative for consumers with bad credit. Dealerships charge the maximum interest rates if you have low credit. You’re better off getting a loan from the other lenders, but a car dealership loan is the last resort for some consumers.

Interest rates for borrowers with bad credit

Lenders set interest rates based on your credit score. Lenders see low credit consumers as higher risks. Therefore, they charge higher interest rates to get more money up front and throughout the loan. Used cars have higher interest rates than new cars.

Credit scoreAverage APR on a new carAverage APR on a used car

What to consider with an auto loan for bad credit

You can still get an auto loan even if you have bad credit. Purchasing a car is an important decision already, but you’ll have to consider additional factors if you have bad credit.

Set your budget

You don’t want to buy more car than you can afford. Failing to keep up with loan payments can result in a default and losing ownership of your vehicle. You should review your expenses and determine how much you can afford. You should consider how much the loan will cost each month. 

Some car borrowers make a high down payment to reduce their monthly loan payments. If you don’t have enough funds to make a down payment, you should look at a less expensive model that fits your budget and has sufficient functionality. You can get a better deal with a used car, but interest rates on these loans are higher.

Compare lender criteria

Some lenders are strict about credit scores and income minimums, while others accommodate low credit borrowers. Not every lender allows a cosigner, a common path for new borrowers to get great rates. Asking each lender questions about credit scores, debt-to-income, and other concerns will help you discover the right lender for you.

Compare loan terms

Loans with longer terms come with higher interest rates but lower monthly payments. You’ll save money now with a longer term but pay more in the long term. Opting for a shorter loan term gets you out of debt sooner but takes more space in your budget. Assess your current spending and see how the monthly loan payments from various loan terms would impact your finances.

Interest rates

Lenders charge higher interest rates to borrowers with bad credit. A high interest rate can add an extra $100 to your monthly payment. Pay attention to the APRs on each loan offer and pick the lender with the lowest APR. 

Credit score improvement

Not every borrower needs a car right away. Taking a few months to improve your credit score can help you qualify for a better loan and get lower interest rates. If you take out a loan, look for lenders who report your payment history to one or all of the three major credit bureaus. 

Paying your auto loan on time will improve your score and help with future financing. These payments can help you qualify for a low-interest mortgage. Paying debt on time is one of the best ways to improve your score. Prioritize paying off any credit card debt or other high interest obligations.


A hard inquiry will hurt your credit score. While it’s a minor inconvenience for people with strong credit, this inquiry makes a low credit score even worse. Asking lenders to prequalify instead of pre-approve you for a loan will only trigger a soft credit pull. A soft credit pull will not hurt your credit score.

Additional fees

Many lenders have additional fees for their loans. These small fees add up and can affect your monthly budget. Check a lender’s application fees, processing fees, prepayment penalties, and other fees before getting started.

Get your auto loan even with low credit

You can get an auto loan even if you have bad credit. Some lenders will work with you to make the financing work, but you will get a higher interest rate than average. 

Some borrowers build their credit scores in anticipation of getting financing, but not everyone has that flexibility. Assess how much you can afford to spend on a car and stay within budget. 

Making on-time auto loan payments will strengthen your credit and help you qualify for better financing in the future.


Can I get a car with a 500 credit score?

You can get a car with a 500 credit score, but you will have to pay a higher interest rate.

Can you finance a car with a 530 credit score?

You can finance a car with a 530 credit score. Lenders will charge a higher interest rate, but you can still get a vehicle.

What is the lowest credit score to buy a car?

Some lenders will work with you even if you have a poor credit score. However, they will charge higher interest rates.

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