You may be able to get a car loan with bad credit, but you’ll want to carefully weigh the costs.
If your credit isn’t the best and you need a car loan, your financing terms could be costly. Credit scores are used by lenders to determine how likely it is that you will repay your loan; the lower your score, the greater the risk they assume. Lenders will typically charge a higher interest rate in exchange for that risk.
For example, someone with subprime credit (which Experian defines as scores of 501 to 600) received an average rate of 11.53% for a new vehicle and 18.55% for a used one in the first quarter of 2023, according to an Experian report. By comparison, the average interest rate on a 60-month new-car loan was 7.48% during that same period, according to the Federal Reserve.
In addition to reviewing our top choices for auto lenders who provide car loans for bad credit, we’ll look at some strategies you can use to shop around for an auto loan that might help reduce the cost of financing a vehicle.
How can I get financed for a car with bad credit?
By following these steps, you may increase your chances of being granted a car loan that meets your financial situation.
Check your credit before you start looking for a car loan. Examine your credit reports for any inaccurate information, then raise the issue. Errors may cause your credit scores to drop and make it more difficult for you to be approved for a loan.
Before you begin looking for a loan, checking your credit can also help you set your expectations. You can request a free credit report from each credit bureau annually at annualcreditreport.com, or you can check your Equifax and TransUnion credit reports for free on Credit Karma. com.
Spending some time establishing your credit might pay off if you don’t need a new car right away. You might be able to get a lower interest rate on your auto loan, which could save you thousands of dollars.
However, if you’re in a rush, you might want to think about getting a close friend or member of your family to co-sign. A creditworthy co-signer may increase your chances of loan approval or help you negotiate better terms and rates.
Save for a down payment
There are various advantages to setting aside money for a down payment. First off, if you have poor credit, having a down payment may make it easier for you to be approved for an auto loan. The lender assumes greater risk when there is no down payment because it could lose more money if the loan is not repaid and the car has to be repossessed. As a matter of fact, some lenders might ask for a down payment.
Plus, you’ll pay less interest with a down payment. Your need to borrow money for the car will decrease as you put down more money. As a result, you’ll pay interest on a smaller total amount, which will reduce your overall interest paid.
A smaller interest rate could also be obtained with a down payment. When determining your interest rate, lenders take into account your loan-to-value ratio, or the amount of your loan divided by the vehicle’s value.
Determine how much you can afford
When determining how much you can afford to borrow, consider factors other than your monthly loan payment. Think about and account for the expenses associated with owning a car, including gas, upkeep, insurance, parking fees, and property taxes.
Extending your loan term to six or seven years might seem appealing since it would result in a smaller monthly payment. However, bear in mind that a longer auto loan term (up to 84 months) increases your risk of becoming upside down on your loan, which can present difficulties when it comes time to sell or trade in your car because you’ll owe more than it’s worth. You could also end up paying more in interest over the course of the loan.
You can calculate how much interest you would pay on a car loan with our auto loan calculator.
Shop with different lenders
Finding the best loan for your needs and budget may be facilitated by shopping around and comparing rates and loan terms offered by different lenders. Here are some lenders you might want to look into if you have bad credit.
- Your existing bank or credit union: If you already have a working relationship with one of these institutions, that might be a wise first step.
- Online lenders: A few lending platforms and lenders online focus on providing auto loans to borrowers with poor credit. You might be able to apply directly for prequalification on their websites as well. You can view the estimated loan rate and terms you might be eligible for if you are prequalified. Just remember that being prequalified does not ensure that you will be granted the loan or that the estimated terms of the loan will be met.
- Automobile dealerships: Dealerships usually maintain connections with several banks and financing firms, so it’s possible that they can locate a lender within their network that will authorize your loan. Additionally, some dealerships have dedicated financing departments for customers with bad credit.
- Buy-here, pay-here dealerships: These should only be used as a last resort if you’re having trouble getting approved for an auto loan elsewhere and you need a car. People with poor credit can apply for their own loans from these “no credit check” dealerships, but the interest rates on these loans are typically far higher than those from banks and other lenders.
It’s a good idea to compare rates at the same time to lessen the potential negative effects that shopping for an auto loan may have on your credit. Multiple credit inquiries of the same type within 45 days are counted as a single inquiry by FICO scoring models. VantageScore counts inquiries made more than once in a 14-day period as one inquiry.
Can I get a car loan with a 500 credit score?
Even with a 500 credit score, you can still obtain a car loan, but it will be expensive. Individuals whose credit scores were 500 or below were assigned an average rating of 14. 08% for new-car loans and 21. 32% of used-car loans were made in the first quarter of 2020–2023, as per the report by the Pearson State of the Automotive Finance Market.
That is significantly different from the average loan rates of 661 to 780 (prime) for borrowers with credit scores between 661 and 780. 4% for new-car loans and 8. 75% for used-car loans.
It might also be difficult to obtain a car loan with a credit score of 500. The Experian report shows that only 5. 08% of new-car loans and 3. Six percent of the used car loans that were issued in the first quarter of 2020 went to borrowers whose credit scores were 500 or lower.
Best car loans for bad credit
These are a few of our recommended lenders for bad credit auto loans.
Good for interest rate discounts: New Roads
On select new and pre-owned car models, New Roads offers interest rate discounts that may lower your total interest payments. It’s also helpful to know that New Roads doesn’t require a down payment if you’re having trouble coming up with one.
Read our New Roads auto loans review for more information.
Good for one-stop shopping: Carvana
You can save time by looking for financing and a car in one location with Carvana. Applicants with poor credit are accepted by Carvana as long as they are at least eighteen years old, make at least $4,000 annually, and are not currently in bankruptcy.
Good for people who have filed bankruptcy: RoadLoans
Generally speaking, bankruptcies on your credit record may hinder your chances of being accepted for an auto loan. However, RoadLoans takes into account applicants who have previously filed for bankruptcy, provided that the case has been dismissed.
There are car loans available for people with bad credit, but they can be pricey. A portion of the financial load can be reduced by taking action to raise your credit score prior to car shopping.
If you can’t wait to buy a car, think about getting a used car that fits your needs and is less expensive but still reliable. This will allow you to borrow less money. In the future, you might be able to refinance your auto loan for a better rate as you pay off your debt and work to improve your credit.
FAQ
What credit score is needed for a 30000 car?
Although there isn’t a minimum credit score required to be approved for an auto loan, most accepted applicants have scores above 660. While a low credit score won’t always prevent you from obtaining an auto loan, it will probably result in a higher interest rate.
What credit score do you need to get a $30000 loan?
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APR range
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Minimum credit score requirement
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Best Egg
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8.99%-35.99%
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600
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LightStream
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7.99% to 25.49%* with Autopay
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695
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Upgrade
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8.49%-35.99%
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600
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SoFi
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8.99%-25.81%
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680
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What is the average payment on a 30000 car loan?
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Loan Term (Months)
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Loan Amount
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Estimated Monthly Payment
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48
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$20000.00
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$473.00
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$25000.00
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$592.00
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$30000.00
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$708.00
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60
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$10000.00
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$205.45
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What is the lowest credit score to get a car loan?
The majority of borrowers who apply for used auto loans have credit scores at least 675. Most borrowers with new auto loans have scores of about 730. A new car may require a minimum credit score of about 600, but excellent credit frequently results in lower rates and monthly payments.
Read More :
https://www.bankrate.com/loans/auto-loans/car-loan-with-bad-credit/