Can I Get a Car Loan With Bad Credit?

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If you find yourself needing to get a new vehicle but have less-than-perfect credit, it may seem impossible to get an auto loan. It can be frustrating to be in a position where you feel that there’s no way you could afford to get a car.

Luckily, you still have some options out there. This article covers what credit scores are needed to get a car loan, where to get car loans with bad credit, and how to set yourself up for the best possible loan terms and interest rates.

What Credit Score Do You Need to Get a Car Loan?

There isn’t necessarily a minimum credit score required to be approved for a car loan. With that being said, not all lenders are willing to provide loans to people who have bad credit. Countless lenders across the country offer car loans, and they often have their own requirements when it comes to credit scores.

You can still find options even when you have bad credit, which is great news for those who are worried. The most important part is finding the right lender and loan.

What Scores Do Lenders Look For?

Those who have credit scores between 650 and 660 will often be able to get prime financing through lenders. Prime financing refers to lenders supplying you with a loan at a good interest rate. However, others may require that the credit scores for prime financing be at least 680 to 700. The lowest interest rates are for those who have higher scores, often from 720 and up depending on the lender.

However, this doesn’t mean that every lender will deny the loan if you have credit scores lower than 650. Many people do. These are considered subprime loans, and they will generally have interest rates that are in the double digits. Because there are so many lenders and potential options, it is important that anyone who is looking into getting an auto loan do their research. This is true whether they have great credit or bad credit.

Where to Get a Car Loan With Bad Credit

You have more borrowing options than you might think, even with problematic credit. It’s a good idea to have an understanding of your financing options and how they work, so you know which one might be the best option to pursue. Here are five common ways to get an auto loan:

1. Dealer-Arranged Financing

Dealer-arranged financing can work in some cases. In these instances, the car dealer has lenders they work with to attempt to provide the loan needed for the vehicle. When you apply, you might get several options from different lenders, and can then choose the one that you feel works best for your needs.

This option works best for those who have fair credit. Even those with bad credit may be able to find a lender that is willing to work with them depending on how much they are trying to borrow.

FAST FACT : The ranges of FICO credit scores and their associated labels are as follows. Bad: 300-549, Poor: 550-619, Fair: 620-679, Good: 680-739, Excellent: 740-850.

2. Captive Financing

This is financing that is kept at the dealership and you are financing a loan directly through them. Dealers will often provide this type of financing for new vehicles, but they don’t always offer it for used cars.

Because the dealers want to move the vehicles off their lot, they are more likely to provide financing, even when people have less-than-perfect credit. There are similarities between this and the next option.

3. Buy Here, Pay Here

The car dealers that offer this type of financing tend to work with people with bad credit quite often. There are no outside lenders with this option. Instead, the dealers take care of the financing of the vehicles they sell.

While this can be a way that someone with bad credit can get a vehicle, there are some drawbacks. This type of financing often has high interest rates and requires a large down payment. These are often used vehicles, as well. The dealers may not have many vehicle options available, either.

4. Traditional Banks and Credit Unions

Naturally, these lenders are an option to consider. Even if you have what you consider bad credit, it doesn’t automatically mean that you won’t get a loan. If you have credit that you consider questionable, but it’s still around 650 or 670, it may be worth your time to try to get a traditional personal loan.

In some cases, if you have been banking with them for a long time, they might overlook some issues with your credit history. However, they are still going to watch out for themselves first. If they deem you to be too high of a risk, they will not provide you with a loan and you will have to look elsewhere.

If this option sounds like a possibility, here are more Advantages to Using a Personal Loan.

5. Online Lenders

Today, there are many options available for finding loans online. There are financial tech companies, online banks, and more that can provide auto loans. The process of applying for the loans is all done online. As you can expect, the interest rates will vary between lenders.

Some of the online lenders cater specifically to people who have bad credit. These lenders can be a great option to consider, but you always want to be careful when choosing. You must research the companies you are considering before providing them with information and applying for a loan. Make sure they are legitimate and that they have a good reputation.

6 Tips to Know Before Getting a Car Loan

You want to do what you can to improve your chance of getting approved for your car loan despite the bad credit. Below are a few of the things that you should do before you start looking for lenders and applying.

Tip #1: Improve Your Credit Score

Even though you can get a car with bad credit, you have to remember that it’s not just about finding a lender that will say yes. There’s also the interest rate to consider. High interest often means that the monthly payments will be higher and that you end up paying a lot more for the car over the life of the loan.

Therefore, it’s in your best interest to try to improve your credit score. Take the time to get a free copy of your credit reports and score, so you know what your score is and how lenders will view you. This will give you a better idea of the types of offers you can expect. If you have bad credit and aren’t in desperate need of a car right now, take six months to a year to boost your score as much as possible. Even small improvements can help you to get more favorable terms.

To improve your credit score, one thing you can do is pay your bills on time. Payment history is an important factor in your credit, and having a good record helps to improve and maintain your score. Take steps to reduce your debt and improve your credit utilization ratio. You should try to keep the utilization ratio under 30%.

Tip #2: Know What You Can and Can’t Afford

Although you might want a brand new luxury vehicle, if you don’t have the finances to afford that type of vehicle, you shouldn’t get in over your head. You need to consider the overall cost of the vehicle including the down payment and your monthly payment, insurance, gas, and maintenance for the vehicle.

If you want to improve your chance of getting a loan with bad credit, you can’t ask for a large $30,000 loan for a vehicle. It’s more reasonable to get a $10,000 loan that can help buy a used vehicle. It will be easier for you to pay off, too.

Tip #3: Have a Large Down Payment

You will need to have a down payment whether you are buying a new or used vehicle. The only time you wouldn’t need a down payment would be if you have enough money to buy the vehicle outright.

The down payment money goes toward the purchase of the vehicle. If you have $2,500 that you put down and are buying a used vehicle for $7,500, you will only have to finance $5,000. The more money you can put down on the vehicle the better, as it means you will have to finance less. This will help to reduce your loan amount and the monthly payments.

Lenders that see a large down payment may be more willing to provide a loan because it reduces the amount of risk that they face from loaning to someone with bad credit. Coming up with a large down payment can be difficult for many people. It might be better to hold off on getting a vehicle and taking the time to increase your funds for the down payment while improving your credit score.

Tip #4: Shop for a Loan

Take some time to shop around and look for the lenders that could provide you with financing that works for your financial situation.

Remember, if you have bad credit, you are going to continue to see interest rates that are higher than what other people might get. Unfortunately, that’s part of the price people pay for having bad credit. It doesn’t always seem fair, but it’s what you have to work with.

Tip #5: Try to Get Pre-Approved

If possible, try to get pre-approved for an auto loan through one of the lenders you are considering. If you have pre-approval, you will know how much the lender can provide, which will make it easier for you to shop for cars. You will know how much you have available to spend on a vehicle.

Additionally, when you are pre-approved, it can make it easier to negotiate with dealers. They will see that you are serious about buying and that you have money available. In some cases, they might be willing to come down a bit in price.

Tip #6: Get a Cosigner

If you find that having bad credit is continuing to make it difficult to get a car loan, you might want to consider getting a cosigner. This is someone who will apply for the loan with you and who will be responsible for making the payments on the vehicle if you do not.

The person chosen as a cosigner should have good credit, which will make it easier to get the loan. Having a cosigner makes lenders more open to providing a loan because it reduces their risk. Of course, this option has some drawbacks. If you don’t make your payments, it will not only affect you but your cosigner as well.

How Will a Car Loan Affect Your Credit Score?

If you are diligent about paying your car payment each month, you’ll find that the loan can have a positive effect on your score. Those on-time payments help to increase your credit score, which could help to make things easier the next time you need to get a loan.

With that being said, missed payments will continue to negatively affect your credit score. If you miss too many payments, it could result in repossession, which can be a huge blow to your credit.


As you can see, it’s still possible to find a car loan if you have bad credit. It just takes a bit more research and you will likely be paying a higher interest rate. If you need a vehicle, though, there are options available. Take your time to research the lenders, compare options, and prepare a solid budget.

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