How To Get a Car Loan With Bad Credit: Best Lenders and Tips

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Bad credit can hold you back financially. While it might be more challenging to find an auto loan, it’s still possible to get one with bad credit.

This guide walks you through how to get a car loan with bad credit.

Can You Get a Car Loan with Bad Credit?

Yes, you can get a car loan with bad credit. Most lenders look at factors beyond just the credit score, including income and debt-to-income ratio when you apply.

Borrowers with bad credit should expect higher interest rates and stricter lending requirements. Some lenders specialize in bad credit car loans, though these tend to offer higher interest rates.

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

The exact credit score needed for car loans varies from lender to lender. Here’s a look at the different credit score ranges and what car shoppers can expect:

• Excellent Credit – 750 and above: If you have an excellent credit score, you may be offered the best interest rates and loan terms.
• Good Credit – 700-749: Most lenders offer competitive rates to borrowers with good credit.
• Fair Credit – 600-699: Even if you have fair credit, many lenders are willing to work with you. You should expect higher interest rates, though.
• Bad Credit – Below 600: Bad credit borrowers face limited lender options, higher interest rates and may require a larger down payment or co-signer.

Steps to Get a Car Loan with Bad Credit

If you want to get a car loan with bad credit, follow these steps:

1. Check your credit score: Know where your credit score stands before you start applying for loans.
2. Improve your score: Take time to improve your credit score. Commit to making on-time payments and dispute any errors you find on your credit report.
3. Set a budget: Consider how much you can realistically afford to spend on a car payment each month. Look beyond the car payment. Think about the extra costs that come with car ownership, including insurance, gas and maintenance.
4. Save for a down payment: Start with a larger down payment. This lowers your loan amount, since you’re already contributing to the car’s cost. It may also improve your chances of getting approved, especially if you have bad credit.
5. Compare lenders: Research banks, credit unions and online lenders that work with borrowers who have bad credit.
6. Consider a co-signer: To a lender, having a co-signer with good credit means you’re less risky as a borrower; in other words, no missed payments or default. If you know someone with good credit who is willing to cosign on your loan, it could help you tap into lower interest rates.
7. Get preapproved: A preapproval letter gives you a clear idea of your financing options before you head to the dealership.
8. Choose a car within your budget: Avoid financing a car that pushes your loan limits.

Where To Get a Car Loan with Bad Credit

Not every lender will work with borrowers who have bad credit. Below is a look at some of the lending institutions, including pros and cons:

If you are struggling to find a lender, consider looking into loan options at your current bank. Many are willing to work with you to find a loan, especially for long-time and loyal customers.

How To Get a Lower Interest Rate on a Bad Credit Car Loan

If you have bad credit, you’ll likely only be offered a relatively high interest rate. There are ways you can lower your interest rate, such as:

• Save up for a larger down payment: A larger down payment decreases your loan amount, which also decreases risk for the lender. Since the lender is taking on less risk, they might be willing to offer you a lower interest rate.
• Choose a shorter loan term: In general, shorter loan terms come with lower interest rates.
• Buy a less expensive car: If you opt for a more affordable car, you’ll likely need to borrow less. When you borrow less, most lenders tend to offer lower interest rates.
• Shop around: Shopping around to compare rates across multiple lenders can help you find the lowest rates for your situation.
• Consider a co-signer: A co-signer with a good credit score could help you lock in lower rates.

Pros and Cons of Getting a Car Loan with Bad Credit

Every financial decision has advantages and disadvantages. Consider the following:

Pros

• Helps build credit when payments are made on time.
• Allows you to get reliable transportation even with low credit.
• Some lenders offer special financing programs for bad credit.

Cons

• Higher interest rates lead to more expensive loans.
• May require a large down payment.
• Limited lender options compared to borrowers with good credit.

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