How to get a car loan with bad credit Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial decisions by offering interactive tools and financial calculators, publishing original and objective content. We also allow you to conduct research and compare information at no cost and help you make informed financial decisions. Bankrate has partnerships with issuers including, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Profit The offers that appear on this site come from companies that compensate us. This compensation could affect how and when products appear on this website, for example, for example, the sequence in which they appear in the listing categories, except where prohibited by law. This applies to our mortgage or home equity products, as well as other products for home loans. But this compensation does affect the information we provide, or the reviews that you read on this site. We do not contain the universe of companies or financial offers that may be open to you. Anna Kraynova/Getty Images
6 minutes read Read Published March 02, 2023
The writer is Hanneh Bareham. Written student loans reporter Hanneh Bareham is an expert in all matters connected to student and personal loans and helping you finance your next endeavor. She is determined to assist people achieve their collegiate and financial goals by making loans easier to understand. Edited by Rhys Subitch Edited by Auto loans editor Rhys has written and edited for Bankrate since the end of 2021. They are passionate about helping readers gain confidence to manage their finances with concise, well-studied information that breaks down complex topics into manageable bites. The Bankrate promises
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We make sure that everything we publish ensures that everything we publish is accurate, objective and reliable. We have loans reporters and editors focus on the points consumers care about the most -- the different kinds of loans available and the most competitive rates, the best lenders, how to pay off debt , and many more. So you'll feel safe making a decision about your investment. Integrity of the editing
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There are money-related questions. Bankrate has the answers. Our experts have helped you understand your money for over four decades. We are constantly striving to provide our readers with the professional advice and tools required to be successful throughout their financial journey. Bankrate adheres to a strict code of conduct policy, which means you can be confident that our content is honest and reliable. Our award-winning editors and journalists create honest and accurate content that will help you make the best financial decisions. Our content produced by our editorial staff is objective, truthful and uninfluenced from our advertising. We're open about the ways we're able to bring quality content, competitive rates and helpful tools to our customers by revealing how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We receive compensation for the promotion of sponsored goods and services or through you clicking certain links posted on our site. So, this compensation can influence the manner, place and in what order products are listed and categories, unless it is prohibited by law. We also offer mortgage home equity, mortgage and other products for home loans. Other factors, like our own rules for our website and whether the product is available within your area or at your own personal credit score may also influence how and where products appear on this site. While we strive to provide the most diverse selection of products, Bankrate does not include specific information on every financial or credit products or services. If you have a poor credit score, you may be concerned that you might not be able to get a car loan from an established lender. But before settling for a loan via a buy-here, pay-here dealer think about researching all possible alternatives. Even though having bad credit -- a credit score between 300 and 500 could make getting a loan difficult task, it's not impossible. Additionally, you'll notice that the cost of borrowing is much less with a bank, credit union, or online lender no matter what your credit rating. How to apply for a car loan that are based on bad credit Prepare on several fronts before you start the application process to get an automobile loan that has bad credit. Be particular about your credit score and be certain that all terms are in place prior to making the purchase. 1. Know your credit score Before you begin shopping Check your score on credit. Based on the FICO credit scoring system which is ranging from 300 to 850, any score that falls lower than 580 is considered to be poor. Your FICO score can be determined based on factors like how much you owe and the duration of your credit record as well as the history of your payments. Paying your bills on time, regularly using more credit than you have available monthly credit and having a bad credit history all can negatively impact the score of your credit. The Bankrate advice
Prior to you apply for an auto loan make sure you do not open new credit cards or loans. Doing your best before you begin shopping will put you in a better position with the lenders.
2. Make a savings account for a down payment If you have a lower credit score, getting the road, a car could increase your chances of securing and getting granted an automobile loan. Setting aside some extra cash every month for a down payment can help offset the higher interest rates caused by poor credit scores and could lower your loan-to-value ratio, allowing you to be eligible for better terms. Experts suggest a downpayment that is at least 20 percent, but if that's too much, put down what you're able to pay. You may find that some dealers who deal with credit-challenged clients will allow down payments as low as $1,000. 3. Research Prepare as much as possible so you're not caught off guard when the time comes to negotiate. When you're applying for a loan make sure you know the typical APRs for auto lenders. If you have a bad credit score, you'll likely be offered some of the highest advertised rates. If you're purchasing used it is also helpful to understand the features of the vehicle you're considering. 4. Explore the options once you have started the shopping process, don't limit yourself to one lender. There are numerous lenders that can help you secure the loan that include: Banks as well as credit unions. If already have an existing relationship with a bank or credit union, you can start with them here. Some banks and credit unions offer members discounts on rates. Online lenders: A lot of online lenders offer the option of prequalifying on their sites, which allows you to see what terms you might be eligible for before applying. This will save you from having the hassle of a credit check in case you don't meet the requirements. Car dealerships: You are eligible apply for credit if you satisfy the credit and financial requirements. You'll have a meeting with a finance department representative, and they'll send your information to several lenders. Some dealers may offer loans to borrowers with a bad credit history. However, they often mark up the rates they offer in order to earn more money off the deal. Dealerships that buy-here or pay-here: Buy-here, pay-here dealerships are useful when you're not approved by a bank or lender to get a loan however, be careful. While these types of dealerships are better able to accept an applicant with , the interest rates can be much higher. Bankrate tip
Lenders run a hard credit check in the course of applying. It's advisable to think about at least three lenders in a 14-day period to ensure that your credit score doesn't be hit by multiple slaps.
5. Prequalify with lenders through Prequalification allows you to see whether you're eligible for a loan prior to applying and see estimates of loan terms. Additionally, you'll be able to save time in applications and avoid unnecessary credit checks that could adversely affect your score on credit. After you've been prequalified by a few lenders, you can submit documentation and get preapproved. This will lead to a formal credit report, however an auto loan is more important because it demonstrates the lender's willingness to extend an automobile loan for you. Also, you'll be able to leverage yourself in the car dealership and can negotiate like the cash buyer. 6. Make sure that the terms are final 6. Avoid subprime lenders Subprime lenders can seem like a good bet to anyone wondering how to get a car loan with bad credit. They usually target customers with lower credit scores and make the car buying process seem effortless and easyinitially. However, they can also come with high rates of interest and could mean paying thousands of dollars extra to pay interest throughout the course of the loan. Tips for banks
Only consider subprime lenders if you cannot find another option for financing.
7. The terms of the shop loan terms are not monthly payments. Lower monthly payments appear attractive on paper, and are often used to entice buyers. They may lead to you paying more for your car over the course of the loan because they . Since car loans are available for bad credit have higher APRs they could result in paying thousands more than the vehicle's value at the end of the loan due to the accumulation of interest. When you shop to purchase a car, search for the most attractive terms -- usually that have the lowest rate for the shortest period. That way, you will have a more manageable monthly payment with reasonable interest rates. If you are unable to find a rate that is low you can consider looking for an alternative vehicle. 8. Bring a friend with you Consider a co-signer Ask someone you know or a family member to join you, according to Massachusetts-based consumer attorney Yvonne Rosmarin. Bringing someone you trust to the table to negotiate can to build confidence. And confidence, combined with knowledge, can lead to more favorable loan terms. Think about asking a trusted friend or family member to be a . Ideally, the person you choose to co-sign with has a steady sources of earnings, high credit score and an exceptional credit history. Co-signers reduce much of the risk for lenders -as the co-signer is responsible for the loan in the event of a default on your payments. Co-signing with a co-signer could be an advantage and typically results in a lower interest rate. 9. Beware of add-ons and frauds. Nonprime buyers are more likely to come across lending contracts with nonessential goods and services, says Josh Frank, former senior researcher for the Center for Responsible Lending. Other expenses, like , can pile up for nonprime buyers. Never agree to a loan that is contingent upon certain things, like extended warranties, after-market services or . Be aware of these extras particularly if you're planning to apply to a pay-here, buy-here, or buy-here dealer or plan to trade in your vehicle. Also, remember that incorporating these expenses into your loan means you'll pay more interest during the loan period. 10. Make sure that the terms are in place if you are financing through a dealer, always make sure the terms are in place before you sign. If you don't do this, you could face higher monthly payments. Some shady dealers tell car buyers that their financing may not be complete well after the customer completes the purchase. They then inform the buyer that they must accept a higher interest rate or return the car. This is known as . Where can I locate the bad credit car loan Car loans are offered through a variety of banks, credit unions and online lenders. Dealership financing, as mentioned above. However, if you've got bad credit, you're more likely to get a loan that has reasonable terms with an internet lender. Certain credit unions may accept a bad credit car loan if you have a good history with their institution. Find out which Bankrate's choices are the best to explore options. Credit-worthy car loan APRs Borrowers with good or excellent credit score get the most attractive auto loan offers. That doesn't mean you'll automatically have fewer options if you have a credit score lower. However, your costs for borrowing are likely to be higher due to the risk you present to the lender. Here's a breakdown on the current interest rates for the average credit score from the fourth quarter of 2022 The credit score range
New car
Car used
Deep Subprime 300-500 500
13.42%
20.62%
Subprime: 501 to 600
10.79%
17.46%
Near Prime 601 to 660
8.12%
12.08%
Prime 661 to 780
5.82%
7.83%
Super Prime: 781 to 851
4.75%
5.99%
Next steps If you are a person with bad credit, it may be more difficult to obtain an auto loan. There could be lower interest rates or unfair lending practices. However, researching, saving to pay for a down payment, and getting preapproved can help you prepare to get the best price on an auto loan. If you that's right for you, make timely payments to help boost your score on credit. At that point, ; you might find the loan with even better terms. Find out more
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Written by Student loans reporter Hanneh Bareham specializes in everything related to personal and student loans and helping you finance your next venture. She aims to help others reach their collegiate and financial goals by making loans more understandable. Written by Rhys Subitch Edited by Auto loans editor Rhys has written and edited for Bankrate since the end of 2021. They are dedicated to helping readers gain the confidence to take control of their finances through providing clear, well-researched information that break down complex topics into manageable bites.
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