How to get a car loan with bad credit Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make better financial decisions by offering interactive tools and financial calculators as well as publishing original and impartial content, by enabling you to conduct research and compare information for free to help you make sound 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 Money The offers that appear on this site come from companies that pay us. This compensation could affect how and where products appear on the site, such as such things as the order in which they may be listed within the categories of listing, except where prohibited by law. Our mortgage or home equity products, as well as other products for home loans. However, this compensation will have no impact on the information we publish, or the reviews appear on this website. We do not contain the universe of companies or financial offerings that could be accessible to you. Anna Kraynova/Getty Images
6 minutes read Read Published March 02, 2023.
Written by Hanneh Bareham. Written by student loans reporter Hanneh Bareham is a specialist in all things related to personal and student loans and can help you finance your next project. She aims to help people achieve their collegiate and financial goals by making loans more understandable. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are committed to helping readers gain confidence to manage their finances through providing concise, well-studied information that breaks down otherwise complex topics into manageable bites. The Bankrate promises
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They ensure that what we write is objective, accurate and trustworthy. The loans reporter and editor are focused on the things that consumers are interested about the most -- the various types of loans available and the most competitive rates, the top lenders, the best ways to pay off debt , and more -- so you'll be able to feel secure when making a decision about your investment. Editorial integrity
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You have money questions. Bankrate has the answers. Our experts have been helping you manage your finances for more than four decades. We are constantly striving to provide consumers with the expert guidance and the tools necessary to make it through life's financial journey. Bankrate follows a strict standard of conduct, so you can rest assured that our information is trustworthy and precise. Our award-winning editors and journalists provide honest and trustworthy content that will help you make the best financial decisions. Our content produced by our editorial team is objective, factual, and not influenced through our sponsors. We're open regarding how we're in a position to provide quality information, competitive rates and helpful tools for you , by describing how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for the promotion of sponsored goods and, services, or through you clicking specific links on our site. Therefore, this compensation may impact how, where and in what order products are listed and categories, unless it is prohibited by law. We also offer mortgage or home equity products, as well as other home loan products. Other elements, such as our own proprietary website rules and whether a product is offered in your area or at your personal credit score could also affect the manner in which products appear on this site. We strive to provide an array of offers, Bankrate does not include specific information on each credit or financial product or service. If you have a low credit score, you may be concerned about whether you will be approved for a car loan from an established lender. But before settling for a loan via a buy-here, pay-here dealer, consider researching all possible possibilities. Even though being a victim of bad credit -- a credit score between 300-500 can make getting a difficult task, it's not difficult. Plus, you'll find that the costs of borrowing are lower with a bank, credit union or online lender no matter what your credit rating. How to apply for an auto loan for those with bad credit Prepare on several aspects prior to beginning the process of applying for an auto loan that has bad credit. Take note of your credit score, and make certain that all terms are in place prior to making the purchase. 1. Be aware of your credit score prior to you begin shopping Check your credit score. Based on the FICO credit scoring system, which can range from 300-850 scores, any score lower than 580 is considered to be poor. The FICO score is calculated based on things like the amount you owe and the duration of your credit history, and the history of your payments. Not making your payments punctually, using more credit than you have available monthly credit, and having a poor credit history could all negatively impact your credit score. Tips from Bankrate
Prior to you apply to get an auto loan make sure you do not open new credit cards or loans. Making efforts to before you begin shopping can put you in a more favorable standing with the lender.
2. Set aside money for a downpayment If you have a lower credit score, on an automobile can boost the chances of getting approved for the auto loan. Saving a little money each month to pay for a downpayment can also offset higher interest rates caused by poor credit scores and can lower your loan-to-value ratio, helping you get better conditions. The experts recommend a down payment that is at least 20 percent, but if that's too much, you can pay what you're able to pay. It is possible that dealers who deal with credit-challenged clients will allow down payments as low as $1,000. 3. Research as much as possible so you're not caught off guard when the time comes to discuss the terms. Before you submit an application for a loan make sure you know what are the most common APRs offered by auto lenders. With a bad credit score, you'll likely be offered some of the most expensive rates advertised. If you're purchasing a used car it is also helpful to be aware of the condition of your preferred car. 4. Explore the options once you have started the shopping process, don't limit yourself to one lender. There are many lenders that can help you obtain a loan, including: Banks or credit unions already have relationships with a financial institution or credit union, you can start with them here. Some banks and credit unions offer discounted rates for members. Online lenders: A lot of online lenders have the option of prequalifying on their websites. This allows you to see the terms you may be eligible for prior to submitting an application. This will save you from having an expensive credit test if you don't meet the standards. Dealerships for cars: You may qualify be approved if you have the required financial and credit criteria. You'll meet with an official from the finance department and they'll forward your information to different lenders. Some dealerships may also offer programs for those with bad credit history. But, dealers frequently mark up the rates they offer in order to earn more money from the deal. Buy-here, pay-here dealerships are a good option. Pay-here or Buy-here dealerships are a good option if you're not approved by a bank or lender for an loan however, be careful. Although these dealers are more likely to approve a person with this type of loan, the interest rates could be higher. Bankrate tip
Lenders run an extensive credit test during the application process. It is recommended to look at least three different lenders within a 14-day timeframe to ensure your credit score won't take multiple hits.
5. Prequalify with lenders Prequalification allows you to determine whether you're eligible to receive a loan prior to applying and view estimated loan terms. Additionally, you'll be able to save time on applications and avoid unnecessary hard credit checks that can negatively impact your credit score. Once you're pre-qualified with several lenders, you can submit documents and be preapproved. It'll result in a hard credit check, but the loan holds more weight as it represents the lender's commitment to provide the auto loan for you. Also, you'll be able to leverage yourself in the car dealership and negotiate with them as the cash buyer. 6. Make sure that the terms are in writing 6. Avoid subprime lenders Subprime lenders may appear to be a safe bet to anyone wondering how to get an auto loan with bad credit. They typically cater to those with less credit scores and can make the process of buying a car appear easy and effortlessinitially. However, they can also come with high rates of interest and could mean the payment of thousands of dollars to pay interest throughout the course of the loan. Tips for banks
Consider subprime lenders only in the event that you do not have an alternative financing source.
7. The terms of the shop loan terms, not monthly payments Lower monthly payments look good on paper and are usually used to entice buyers. They could result in you spending more on your car over the life of the loan due to the fact that they . Since the car loans are available for bad credit have higher APRs, you may end up paying more than the vehicle's value at the close of the loan due to the accumulation of interest. When shopping for a car to purchase a car, search for the most attractive terms , which is usually with the lowest interest rate over the shortest period. This way, you'll have a more manageable monthly payment with reasonable interest rates. If you are unable to find a low APR you can consider looking for a different vehicle. 8. Bring a friend with you -- and consider a co-signer Ask someone you know or a family member to go with you, according to Massachusetts-based consumer attorney Yvonne Rosmarin. Bringing someone you trust to the negotiating table can help inspire confidence. And confidence, combined with knowledge, could help you negotiate better loan conditions. Think about asking a trusted person in your family or friend to be a . Ideally, the person you choose to co-sign with must have a stable sources of earnings, good credit score, and an outstanding credit background. Co-signers reduce much of the risk for lenders -since the co-signer will be accountable for the loan should you fail to make the payments. The addition of a co-signer an advantage and typically results in lower interest rates. 9. Look out for add-ons and scams . Buyers who are not prime are more likely to come across loans that do not include essential products and services, according to Josh Frank, former senior researcher for the Center for Responsible Lending. Other costs, such as that can add up for nonprime buyers. Never agree to a loan that is contingent upon certain things, like extended warranties, after-market service or . Pay attention to these additional charges particularly if you have to apply at a pay-here, buy-here, or buy-here dealer or you plan to trade in your vehicle. Be aware that incorporating these expenses into the loan means you'll have to pay more in interest during the loan term. 10. Make sure that the terms are final If you are financing via a dealer always make sure the terms are in place before you sign. If you don't, you could face higher monthly payments. Some dealers who are shady tell buyers that their financing may not be fully completed until after the buyer finalizes the purchase, and they must accept a higher interest rate or even return the vehicle. This is called . Where can you find a bad credit car loan Car loans are offered through a variety of bank, credit unions, and online lenders. Dealership financing, as discussed above. But if you have bad credit, you're more likely to be able to secure a loan with reasonable terms through an online lender. Certain credit unions may approve you for the bad credit car loan if you have a positive track record with their organization. Check out Bankrate's picks for the best options to consider. Cars with bad credit loan APRs Borrowers who have good or excellent credit get the best attractive auto loan deals. However, that doesn't mean you'll be denied loans when you have a credit score less. However, your borrowing costs will likely be much higher due to the risk that you pose to the lender. Here's a breakdown of current average interest rates by credit rating from for the fourth quarter of 2022 The credit score range
New car
Cars used
Deep Subprime 300-500 500
13.42%
20.62%
Subprime: 501-600
10.79%
17.46%
Near Prime 601 to 600
8.12%
12.08%
Prime 661 to 780
5.82%
7.83%
Super Prime: 781 to 850
4.75%
5.99%
The next step is to take if you have bad credit, it may be tougher for you to obtain an auto loan. You may face lower interest rates or predatory lending practices. However, doing your research, saving for a downpayment and getting preapproved can help in negotiating the best price on an auto loan. If you that's right for you, be sure to make punctual payments to boost your score on credit. In the future, you may be eligible for the loan with better conditions. Learn more
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Written by Student loans reporter Hanneh Bareham specializes in everything connected to student and personal loans and can help you finance your next project. She is determined to assist students achieve their college and financial goals by making loans more understandable. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are dedicated to helping readers gain the confidence to take control of their finances by providing concise, well-researched, and well-researched content that breaks down otherwise complex topics into digestible chunks.
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