How to Buy a Car with Bad Credit


Unless you live in a city with excellent, reliable public transportation, you need a car. It’s a fact of life.

girl holding car keys

It’s also a fact of life that old cars break down, and the cost to get them back on the road just doesn’t always make financial sense. Plus, even if the car is repairable, you may not have the money to throw at it.

Bad Credit Car Loans

Getting a new car via an auto loan may end up being your only option. However, for many people, bad credit will often stifle their attempts to get a car loan, leading to a catch-22 scenario.

You need the car to make the money, you need the money to pay the bills, and you need to pay your bills to maintain a good credit history. Without a car, everything falls into disarray.

If you know you have bad or fair credit, don’t worry. You can still get a car loan. It won’t be as easy for you as it would have been if you had a good credit score. And you’ll be paying a higher interest rate, but it’s doable. You just have to do your homework.

Read on to find out everything you need to know about getting a bad credit auto loan.

Dealerships That Accept Bad Credit

If you intend to buy a car, you’ve most likely already considered getting a car loan with a company that specializes in bad credit car loans.

You may have already been offered in-house financing from car dealers who partner with these auto lenders. Going with a poor credit auto loan company depends on your situation. Some of them don’t even check your credit. They can get you back on the road, but like most things, it comes at a cost. Eventually, the short-term gain will be overshadowed by the long-term pain.

High Interest Rates

As convenient as these companies may be at times, they aren’t exactly philanthropic organizations. Avoid most of them as much as you can. Why? Because even though the monthly payments may be manageable, the interest rates will be astronomical.

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Best Bad Credit Auto Loans

When you look back, you’ll realize if you hadn’t paid interest, you would have been able to pay for the car many times over.


Plus, don’t forget, cars instantly depreciate once you drive them off the lot. It’s evident that these finance companies exist to make quick money at your expense, not to help you.

Obviously, you’re always going to have a higher interest rate with a bad credit auto loan. However, beware of predatory lenders that have convoluted terms and conditions. And always shop around for multiple offers for comparison.

Furthermore, be careful when negotiating at the dealership. Remember, it’s their job to use pressure tactics to get more money out of you.

What credit score do you need to qualify for an auto loan?

You may have missed a few cell phone payments, or been a few days late on paying your credit card. However, that doesn’t necessarily mean you have poor credit scores. Make sure you know your credit score before you jump to conclusions and make decisions that will impact your finances for years to come.

There are many ways to get your credit score for free online. However, the quality and accuracy of may differ from your actual FICO score. FICO scores are the credit scores that 90% of lenders use. But it can give you a general ballpark of where you’re at. In fact, many people assume they have a bad credit score when they actually don’t.

Top 5 Credit Score Factors

Payments must be at least 30 days late before they’re reported. But, not everything you make payments on is reported to credit reporting agencies. Moreover, credit scores aren’t all about payment history. It’s broken down into five categories:

  1. 30% = amounts owed
  2. 35% = payment history
  3. 10% = new credit
  4. 15% = length of credit history
  5. 10% = credit mix

So even though 35% of your credit score comes from your payment history, it’s not the only thing affecting your credit score. You may be pleasantly surprised when you see that your credit score isn’t as bad as you thought.

So, what credit score do you need for a car loan? Unfortunately, there’s no straightforward answer because there are always places you can go. Bad credit is anything below the mid-600s, the average is 650-720, and excellent credit is 720-850.

Just about any place will give you a car loan if you have at least a 650 or above. You’ll pay a higher interest rate than you would if you had excellent credit history. However, everything will be feasible if you hold a steady job and choose an appropriate car within your budget. It’s really not until you get below 650 that you start getting rejected.

How to Improve Your Credit Before Buying a Car

Get a copy of your credit report. Do this before applying for a car loan.

If you’re new to the world of credit, know that a credit report is different from a credit score. Your credit report is a summary of your financial history. Your credit score is the number. It doesn’t appear anywhere on your report.

All of your debts appear on your credit report, plus lines of credit and any reported missed payments. Take your time verifying the information by comparing your credit card statements and loan balances to what’s listed on your credit history.

brand new cars

It takes time, but you need to verify that the information on the report is accurate. Research shows that at least 20% of people may have incorrect information on their reports.

Disputing Inaccuracies

If you find an inaccurate item on your credit report that you believe is hurting your credit score, you should dispute it. Don’t waste your time calling the credit bureau; instead, write them a letter using snail mail. Include copies of any documents that support your claim. Use a sample letter to make it as easy as possible for them to understand your position.

They have thirty days to investigate the items you’re challenging. If the credit bureau doesn’t respond within that time, they must remove the disputed items. Moreover, if they find that the item you’re disputing is, indeed, inaccurate, they must update your credit report.

If you can delay your car purchase until you’re able to repair your credit, you may have a much better chance at qualifying for a car loan.

Where can you get an auto loan with bad credit?

Many people seeking a bad credit car loan overlook their existing bank or credit union. What makes these better than traditional lending institutions offered by car dealers or large banks?

If you have a healthy relationship with a local financial institution, you might want to begin your car shopping there. They’ll be more likely to give you a car loan.

They also may know that you have a steady job already. When applying for a car loan, lenders want to know that you have the means to repay your debt. Lastly, if you have some money in a savings account, they’ll know you know how to manage money.

Even if you’re not already a member of a credit union, take a look at ones you might qualify for. Many are open to anyone living in a specific area or those who make a one-time donation to a select charity. Credit unions are known for impressive auto loan rates. If you can open an account with a small deposit, you can improve your chances of getting a car loan.

Consider an Online Lender

Getting an auto loan online is a viable option if you’re looking for a car loan with bad credit. You can often find better rates than at car dealerships or even your local bank or credit union because they don’t have physical branches to oversee.

Everything is done online. Many online lending platforms work with multiple lenders, and they specifically target poor credit car buyers. Again, with a poor credit score, you’ll be dealing with high interest rates. However, they won’t be as high as anything you’d get through a car dealership.

Make sure to shop for car loans within a one-month window to avoid multiple inquiries hurting your credit scores. That allows you the flexibility to compare your offers without further damaging your credit scores. Most online lenders allow near-instant approval so you know what kind of offer you’d qualify for.

Is saving up cash for a down payment worth it?

If you can get by for a while without getting a new car, saving up cash for a larger down payment can dramatically help you get a better auto loan.

It’s even better if you can put down 20% because your interest rates and monthly payments will be drastically reduced.

Upside-Down Car Loans

Having more cash invested in your car will also prevent you from going upside down on your car loan. Remember that car values tank as soon as you drive the car out of the dealership.

Furthermore, if you want to sell it later, you won’t owe more than it’s worth if you’ve already paid off a large chunk. Lenders are more likely to approve you for a car loan if you can show you have cash in the bank.

They will also offer you a better interest rate. So beef up your savings account and put down a large down payment, and you should be golden. Lenders like to see you have skin in the game, and that you have a reserve should you lose your job or be unable to work.

Should you get a cosigner for your auto loan?

Getting a cosigner for your auto loan should be considered a last resort. When you get a cosigned loan, the person who serves as your cosigner agrees to make the loan payments on your behalf if you fail to do so.

It helps you meet the lender’s income requirements, qualify for a better interest rate, and lower your car payment if they have a better credit score. However, both credit scores are affected whenever a cosigner is involved.

It can be a good thing for both of you if you’re positive you’ll be able to make your monthly payments, but it can lead to bad blood if you can’t.

Cosigning should really only be done as a last resort because the only credit you should ever worry about is your own. Family and money should almost always be kept separate. A car is definitely not worth more than a relationship.

Next Steps

How you go about getting an auto loan depends on how soon you need to get on the road. Are you young and just want a nice ride? Then, you should probably wait and build up your credit. First cars are rarely the prettiest things on the road, but they’ll always be remembered.

Don’t worry so much about how a car looks. Dependability is what you’re after. For this, Craigslist is a great place to go for your first car. With only a couple thousand bucks, you can have many options. And the best part is you won’t have a monthly payment.

If you need to get back on the road so you can work and feed your family, then your options are limited. Time isn’t on your side. Hopefully, you recognized you needed a new car well before anything happened to your last car.

Save as Much as You Can

Try your best to save up cash in advance! If you’re already living paycheck to paycheck and saving isn’t an option, get pre-approved through your local credit union before taking on a loan from an auto dealer.

Auto dealer lending institutions are your utmost last resort. Just as cosigning should be avoided at all costs, dealer-lenders shouldn’t even be considered an option until all else has failed.

If you have to, it’s not the end of the world. After all, if you make your payments on time, you’ll see a steady improvement to your credit scores. And, you’re still getting a car, you’ll just be paying more.

Lauren Ward
Meet the author

Lauren is a personal finance writer who strives to equip readers with the knowledge to achieve their financial objectives. She has over a decade of experience and a Bachelor's degree in Japanese from Georgetown University.