How to get a car loan with bad credit
Key takeaways
- Less than 16% of borrowers have scores of 600 or less, and the average interest rates for this group are 22%, according to Experian data.
- Shop around to find the best deal on an auto loan for your budget and credit profile, but be prepared for limited loan options and high costs.
- If approved, an auto loan can help improve your credit — provided you keep up with the loan and make on-time payments.
A car loan for bad credit is a risky and challenging endeavor. It’s hard to get approved if you have a low credit score. Less than 16% of borrowers with a car loan had have a score of 600 or lower at the beginning of 2026, according to Experian data. Further, you’ll likely face prohibitively high interest rates. To compare, the average used car loan rate for someone with a score of 781 or higher is a little over 6%, while a borrower with a score of under 500 gets a rate of almost 22% on average.
For that reason, it’s best to work on your credit before you buy a car. But if the purchase can’t wait, make sure to look for a competitive auto loan rather than settling for a high-cost offer from a buy-here, pay-here dealer. With a little legwork, you can find the best bad credit car loans for your financial situation.
How to buy a car with bad credit
Yes, it’s tougher than with better credit. But the good news is that research, saving for a down payment and getting preapproved may help you qualify for a competitive auto loan.
1. Check your credit score
Before you shop for financing, check your credit score. According to the FICO automotive credit scoring system, which ranges from 250 to 900, scores below 600 are considered subprime. If you fall into this category, it can be challenging to secure an auto loan with competitive terms, and you could be denied if your score is too low.
Because auto loans lenders use your credit score as a primary way to judge eligibility, the rate you qualify for will depend on where you fall — a near prime borrower will see much lower rates (and a higher chance of approval) than a borrower in the deep subprime range.
| Credit score range | New car | Used car |
|---|---|---|
| Super prime (781 to 850) | 4.55% | 6.30% |
| Prime (661 to 780) | 6.23% | 8.77% |
| Near prime (601 to 660) | 9.67% | 14.03% |
| Subprime (501 to 600) | 13.44% | 19.42% |
| Deep subprime (350 to 500) | 16.01% | 21.77% |
Check your credit score three to six months ahead of applying to give yourself time to shop around for lenders. That way, you can start searching for lenders that offer the best rates for people in your credit range. Repairing your credit score before you apply will also put you in a more favorable position with lenders.
2. Save for a down payment
Saving up for a down payment will help you finance less, and a smaller principal will reduce your monthly auto loan payment. A down payment can also offset higher interest rates and lower your loan-to-value ratio, which can help you qualify for better terms. And, if you have a lower credit score, making a down payment on a car may increase your chances of being approved for an auto loan.
The general rule of thumb is to make a down payment of at least 20%. If you can’t afford the full 20% and need a vehicle immediately, put down what you can comfortably pay — but remember, the more you can put down at the start of your loan, the less your overall costs will be.
3. Prequalify with multiple lenders
Prequalification lets you check your eligibility and loan terms before you apply. It can save time and avoid unnecessary hard credit checks, which can briefly lower your credit score.
Typically, you don’t need any documentation to prequalify. Instead, it is based on self-reported information, including:
- Personal information (full name, date of birth and address)
- Contact information
- Monthly income
- Monthly expenses, such as rent or mortgage payments
The more accurate information you provide, the more accurate the loan term estimates will be.
Once you prequalify with a few lenders, compare rates and total costs to find the best deal. You can then submit documentation and get preapproved with your top picks. A preapproval application will result in a hard credit check, but a preapproved auto loan holds more weight when negotiating at the dealership because it represents the lender’s commitment to extend an auto loan to you.
Prequalification allows you to preview your rate without a hard credit check, but your actual loan applications will involve hard checks. However, if you submit multiple applications within a 14-day period, your applications will likely only count as one inquiry.
Where to find a bad credit auto loan
Before you head to a car dealer, get prequalified with a bank, or credit union or with an online lender. That way, you’ll have a clear budget and clear rate expectations — plus, it gives you some negotiating power at the dealership.
The likelihood of approval will depend on where you shop and your credit score. Although some lenders will accept scores that are considered deep subprime — 500 or less — most only lender to borrowers with subprime scores between 501 to 600. If you fall into the deep subprime category, it’s worth improving your credit before applying for any loans.
| Best for | Disadvantages | Likelihood of approval | |
|---|---|---|---|
| Banks | Borrowers with an existing relationship with a bank | Stricter acceptance criteria | Around 98% or less |
| Credit unions | Credit union members | Stricter acceptance criteria | Less than 5% |
| Dealerships | Speed and convenience, special offers | Interest markups and other added costs | Less than 6% |
| BHPH/Other | Borrowers who exhausted all other options | High rates and predatory practices | Around Less than 251% |
| Online lenders | Quickly comparing options | Lesser known lenders without physical locations | Around Less than 4539% |
Online lenders and buy here, pay here (BHPH) dealerships offer a decent chance to qualify for a car loan even with bad credit. However, be wary: such lenders are notorious for extremely high interest rates and overall predatory practices.
4. Shop loan terms, not monthly payments
At the beginning of 2026, the average interest rate on used car loans for subprime borrowers was 19.42%. For those with scores of 500 or lower, that number goes up to 21.77%.
For example, a $30,000 loan with a 6-year term — which is not uncommon but still rather lengthy — will cost thousands more in interest with a deep subprime score versus a subprime score.
| Interest rate | Monthly payment | Total interest paid | |
|---|---|---|---|
| Subprime | 19.42% | $709 | $21,014 |
| Deep subprime | 21.77% | $750 | $23,978 |
As you can see, the total cost of the loan is significant with such a long term. Lower monthly payments look good on paper and are usually used to entice buyers. However, since they come with longer terms, they may lead to you paying more for your car over the life of the loan.
Typically, car loans for bad credit have higher interest rates and more fees. Double-digit rates and an extended term mean you may pay thousands more in interest than the car’s full value by the end of your loan term.
Before you apply for a loan, know the monthly payment you can afford and what annual percentage rate (APR) you can expect for your credit score. The most common guidance is to keep your car costs — including your auto loan, insurance, maintenance and gas — between 10% and 15% of your take-home pay.
When you start shopping, look for the most favorable terms — usually the lowest APR over the shortest period. But make sure the monthly payment works for your budget. This is where prequalification and preapproval come in handy.
Seven-year auto loan terms have become popular, but borrow with caution. Repaying a loan for a depreciating asset over such a long time means paying even more interest to your lender. Use an auto loan calculator to understand these costs, and opt for the shortest term allowed by your budget.
5. Consider a cosigner or co-borrower
Consider asking a trusted friend or family member to be a cosigner on your car loan. Ideally, this individual should have a steady source of income, a strong credit score and an exceptional credit history.
Cosigners reduce lenders’ risk because the cosigner is equally responsible for the loan. Because of this, a cosigner may result in a lower interest rate. However, the cosigner’s credit score can suffer if the loan becomes delinquent, even if they don’t own the vehicle. In addition to this risk, a cosigner may find that it is more difficult to borrow money to meet their own financial needs.
Alternatively, you could apply with a co-borrower. This person applies for the loan with you and shares the responsibility for making payments. They also legally share ownership with you, meaning both of your names appear on the car title. This could be a good solution if you’re buying a car with a spouse or partner who has a stronger credit profile. Besides, a lender is more likely to offer a joint application rather than one with a cosigner.
Even if they don’t cosign or co-borrow with you, bringing someone you trust to the negotiating table can help inspire confidence. Confidence, combined with knowledge, can lead to more favorable loan terms.
6. Avoid financing add-ons
Never agree to a loan contingent on purchasing any add-ons, such as extended warranties, after-market services or gap insurance. Be aware of these add-ons, especially if you apply at a buy-here, pay-here dealership. In most cases, they are wrapped up in the loan — meaning you pay interest on services and products you may never use. If you want one of these add-ons, you can always purchase them from a third party once you’ve bought your car.
Additionally, avoid wrapping taxes and other necessary fees into your auto loan principal as you don’t want to pay interest on those either. Rolling these costs into your loan means you’ll borrow more than the vehicle is worth, putting you at greater risk of being upside-down on your loan.
7. Be sure the terms are final
If you finance through a dealership, always confirm the terms are final before signing. A dealer may offer you conditional approval so you can drive off the lot, but since the terms of your loan aren’t set, you may face higher monthly payments than you initially agreed to.
Some shady dealers will entice car buyers with low advertised rates but raise rates after the buyer signs a contract. This deceptive practice is called yo-yo financing. While it may seem similar to conditional approval, this practice is illegal.
What to do if you can’t get approved with bad credit
Delay your car purchase
Waiting to buy a car will give you time to pay down existing debt and improve your payment history, both of which will raise your credit score. It will also give you time to save for a bigger down payment, increasing your chance of approval while also reducing the amount you will need to borrow.
Buy a car privately
It’s possible to buy a car from an individual for cash, often for much less than you would spend at a dealership. You may be able to find cars for private sale through your local newspaper, classifieds or online marketplaces. Since you won’t be financing your purchase, your credit score and debt-to-income ratio won’t matter.
Of course, vehicles purchased privately usually do not come with warranties, guarantees or legal protections you would expect from a dealership. Your choices will also be more limited, and you must be prepared to pay the full cost upfront.
Refinance your loan
In some cases, your best bet is to buy a car with a high-rate loan with the intent of refinancing your auto loan. You can apply to refinance as soon as the car’s title is transferred to your name, but waiting about six months is best so you can establish a strong payment history and improve your credit. That way, you’re more likely to qualify for an improved refinance rate.
Bottom line
Comparing lenders is the best way to check auto loan rates and find the most competitive deal for your financial situation. You may also want to consider an alternative route, like postponing your purchase until your credit score improves or using a personal loan, perhaps with a creditworthy co-borrower or cosigner.
If you find a car loan that’s right for you, make timely payments to help boost your credit score. After your credit score improves, consider refinancing with a different lender to secure better terms.
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