How to Buy a Car with Bad Credit


Living in a city without reliable public transportation often means that owning a car is a necessity. However, buying a car can be challenging if you have bad credit. This guide will help you understand how to secure a car loan even with a bad credit score.

girl holding car keys

We’ll cover everything from finding the right dealerships to improving your credit score before making a purchase. With the right approach and information, you can get back on the road without breaking the bank.

Essential Tips for Securing Bad Credit Car Loans

Having bad credit doesn’t mean you can’t get a car loan. While it might be more challenging and come with less favorable terms, it’s still achievable. Here’s what you need to know about bad credit car loans:

  • Interest rates: Expect higher interest rates compared to those with good credit. Lenders see bad credit as a risk, so they charge more to offset this.
  • Loan terms: Be cautious of predatory lenders with complicated terms and conditions. Always read the fine print and understand what you’re agreeing to.
  • Eligibility: Even with bad credit, you can qualify for a car loan. It might require a larger down payment or a cosigner, but options are available.

By understanding these aspects, you can make more informed decisions and avoid common pitfalls when seeking a car loan with bad credit.

Where to Find Auto Loans with Bad Credit

Securing an auto loan with bad credit is challenging, but it’s achievable with the right approach. Here are some strategies to help you find the best loan options:

  • Online lenders: Many online lenders specialize in bad credit auto loans. Websites like Auto Credit Express and MyAutoLoan can connect you with lenders who are willing to work with borrowers with poor credit. Compare rates and terms from multiple online lenders to find the best deal.
  • Local banks and credit unions: Start by exploring auto loan options with your existing bank or credit union. These institutions might offer more favorable rates and terms, especially if you have a good relationship with them.
  • Dealership financing: Some dealerships have in-house financing programs designed for buyers with bad credit. While these loans might have higher rates, they can be a viable option if you need a car quickly. Be sure to read the terms carefully and understand the total cost of the loan.
  • Subprime lenders: Subprime lenders specifically cater to borrowers with bad credit. They offer loans tailored to those with lower credit scores. While interest rates can be high, these lenders provide an opportunity to secure financing when traditional lenders might not.
  • Buy Here, Pay Here dealerships: These dealerships finance car purchases directly, often without a credit check. However, they usually charge very high interest rates and fees. This option should be a last resort due to the potential long-term financial impact.

Finding Dealerships That Work with Bad Credit

When you have bad credit, finding the right dealership can make all the difference. Many dealerships specialize in helping people with bad credit secure car loans. Here’s how to find them:

  • Look for in-house financing: Some dealerships offer in-house financing specifically for customers with bad credit. These dealerships are more likely to approve your loan application even if your credit score is low.
  • Research online: Websites like Autotrader and provide lists of dealerships that work with bad credit. Read reviews and ratings to ensure the dealership has a good reputation.
  • Ask for recommendations: Friends or family who have been in a similar situation can often recommend dealerships that were helpful and fair.
  • Visit local dealerships: Many local dealerships understand the needs of the community and may offer more personalized financing options.

By choosing the right dealership, you can improve your chances of getting a car loan that fits your needs and budget.

The Impact of High Interest Rates

High interest rates are a common challenge when you have low credit scores. These rates can significantly increase the total cost of your bad credit car loan. Here’s how to manage and mitigate the impact of these higher costs:

  • Compare multiple offers: Don’t settle for the first loan offer you receive. Shop around and compare rates from various lenders to find the best deal.
  • Work on your credit: If possible, take steps to improve your credit score before applying for a loan. Paying down existing debt, correcting errors on your credit report, and making timely payments can help raise your score.
  • Consider a larger down payment: A larger down payment reduces the loan amount and can sometimes help you secure a lower interest rate. It also reduces the overall cost of the loan over time.
  • Avoid predatory lenders: Be wary of lenders with extremely high rates and unfavorable terms. Always read the fine print and understand the terms before signing any agreement.
  • Negotiate terms: Don’t be afraid to negotiate with lenders. Sometimes, you can secure better terms by simply asking for a lower rate or more favorable loan conditions.

Credit Score Requirements for Auto Loans

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.

Here’s a breakdown of what you need to know:

Credit Score Ranges

  • Excellent (720-850): With an excellent credit score, you’ll have access to the best rates and loan terms.
  • Good (650-719): A good credit score still offers favorable loan terms, though the rates may be slightly higher.
  • Fair (600-649): If your credit score falls in this range, you may face higher rates and less favorable terms, but you can still secure a loan.
  • Poor (below 600): A credit score in this range means you’ll likely encounter the highest rates and the most challenging loan terms.

Before applying for a loan, check your credit score through a reliable source. Many banks and credit card companies offer free credit score monitoring. Ensure you know your score so you can set realistic expectations and avoid unnecessary credit inquiries.

Lenders look at more than just your credit score. They also consider your income, employment history, and debt-to-income ratio. Even with a low credit score, demonstrating a stable income and low debt can improve your chances of approval.

brand new cars

Improving Your Credit Before Buying a Car

Taking steps to improve your credit score before applying for an auto loan can save you money and make the approval process smoother. Here are some actionable steps:

  • Check your credit report: Obtain a copy of your free credit report from each of the three major credit bureaus (Experian, Equifax, and TransUnion) through Review the reports for errors or inaccuracies that could be negatively affecting your score.
  • Dispute inaccuracies: If you find any incorrect information on your credit report, dispute it with the credit bureau. Write a letter explaining the error, include supporting documents, and request a correction. The bureau has 30 days to investigate and respond.
  • Pay down debt: Reducing your overall debt can positively impact your credit score. Focus on paying down high-interest debt and consider consolidating smaller balances into one manageable monthly payment.
  • Make timely payments: Ensure all your bills are paid on time. Set up automatic payments or reminders to avoid missing due dates. Payment history makes up 35% of your credit score, so consistent on-time payments can significantly improve your score.
  • Avoid new credit applications: Each new credit inquiry can lower your score slightly. Avoid applying for new credit cards or loans before you apply for an auto loan to maintain your current score.
  • Build a positive credit history: If you have limited credit history, consider using a secured credit card or becoming an authorized user on a family member’s account. Making small purchases and paying them off each month can help build a positive credit record.

The Benefits of Saving for a Car Down Payment

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.

Consider a Cosigner for Your Car 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.

Final Tips and Recommendations

Purchasing a car with bad credit can be challenging, but with the right approach, you can secure a loan that meets your needs. Here are some final tips and recommendations to help you navigate the process:

  1. Know your credit score: Before you start shopping for a car, check your credit score. Understanding where you stand will help you set realistic expectations and identify areas for improvement.
  2. Set a budget: Determine how much you can afford to spend on a car, including the down payment, monthly loan payment, insurance, and maintenance. Stick to your budget to avoid financial strain.
  3. Shop around: Don’t settle for the first loan offer you receive. Compare rates and terms from multiple lenders, including banks, credit unions, online lenders, and dealerships. This will help you find the best deal.
  4. Negotiate terms: Don’t be afraid to negotiate with lenders and dealerships. You may be able to secure better terms, a lower interest rate, or additional perks by simply asking.
  5. Consider a preapproval: Getting preapproved for a loan can give you a clear idea of what you can afford and strengthen your negotiating position at the dealership.
  6. Focus on reliability: When choosing a car, prioritize reliability and affordability over luxury features. A dependable car will save you money on repairs and maintenance in the long run.
  7. Plan for the future: Use your car loan as an opportunity to rebuild your credit. Make your monthly payment on time and monitor your credit report regularly. Building a positive credit history will make future financing easier and more affordable.

By following these tips and recommendations, you can manage the process of buying a car with poor credit more effectively. With careful planning and informed decisions, you’ll be able to secure a loan that fits your financial situation and get back on the road with confidence.

Bottom Line

Securing an auto loan with bad credit is possible with the right preparation and persistence. While challenges exist, understanding the loan process, improving your financial habits, and exploring various lending options can make the journey smoother.

Focus on building a strong financial foundation by regularly monitoring your credit and addressing any issues that arise. Engage with lenders who are willing to work with your credit situation, and always read the fine print to ensure you’re getting a fair deal. A strategic approach will help you find a reliable vehicle and set you on the path to financial improvement.

Remember, buying a car is not just about the immediate need, but also about making choices that support long-term financial health. Make informed decisions, stay patient, and prioritize your financial well-being to achieve your goal of car ownership.

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.