Car Loans for Bad Credit

Different car loans are available for people, which are not cheap as they come with interest rates. While some people can easily manage such interest rates, other people find it difficult to pay off the loan amount with a high-interest margin. People typically take time to improve their credit which can help them get approved for a loan and save money. Although getting a car loan is a tedious process, people in need still apply for one by measuring their loan term commitment with the lender.

Some situations are like that people need a car right away. So they are obliged to take specific steps like putting down a deposit and shopping around that will aid them to discover a loan that meets their needs and matches their set budget.

But it is not always the case where people can improve their credit. On the contrary, individuals still require a car loan, and having poor credit makes the whole process more difficult for the borrower.

The reason for this is the financing terms that the lender offers are costly. Since the lenders have a set criterion that revolves around credit score to pay off the loan borrowed with interest, so if a person has bad credit, that would certainly mean that he has a bad credit line, the interest rate (APR) would be relatively high since the lenders are taking on greater risk to grant them the loan. The risk has to do with the probability that their funds might not be returned in due time.

Though it may appear that getting a loan with negative credit is difficult, that is not the case all the time. While having a solid credit score can help you be approved for a car loan with favourable terms, persons with bad credit still have options.

This article will focus on the basic understanding of bad credit auto loans and discuss some top auto loans for people with poor credit. Furthermore, the article will highlight factors that people with bad credit should consider before applying for a car loan.

What is considered an acceptable Credit Score? What is regarded as Bad Credit?

A number that lies between two specific yet distinctive values is what is called a credit score. Those values come between the radiuses of 300 to 850. These values highlight the credit history of a person and show how good or bad is that person’s financial history. There are three major financial credit bureaus that are responsible for keeping a check on each person’s financial history in terms of credit and debit. Those well-established credit bureaus include the likes of Experian, Equifax, and TransUnion.  Since these three credit bureaus are well reputed, so they are widely trusted by lenders.

From a lender’s perspective, the credit score represents the borrower’s creditworthiness, which is evidence that they will pay back the loan plus interest to the lender. 

A credit score is based on certain factors that include the following:

  • An individual’s payment history,
  • The amount of credit that is available with them,
  • The amount of credit they are currently using,
  • The number of credit inquiries from potential lenders,
  • The age of their credit

One of the models that credit bureaus use is the FICO score model. As the name suggests, this scoring model is used to predict people’s creditworthiness to understand if they are above or below the average credit score.

There are different credit categories set up, so several lenders, along with credit bureaus, have set up specific ranges to what they will consider a good, bad or average credit score. For example, the FICO model, which is seen to be widely used, considers the following values and the ranges to be ideal or not ideal.

 The poor credit scores fall somewhere in the 300 to 579 credit range. The fair credit scores start from the highest outlier of poor credit score, which is 580 to 669. The score within this range is considered to be an average credit score. A good credit score is divided into two categories, mainly the good credit score and the very good credit score. The range of good credit scores starts from the credit score of 670 up to 739. Whereas the very good credit score is from 740 to 799 credit range.  Exceptional people have scores between 800 and 850.

The lenders are tasked to determine whether the borrower has good, bad, or excellent credit. Any score below 670 on the FICO credit score model is considered a bad credit score.

Why is a Credit score important? Why does Credit matter to Lenders?

Potential lenders use credit scores for reasons that primarily involve either approving or denying their vehicle loan application. Still, it also helps them to decide the terms of the loan. The terms include the following:

  • the amount of money they’ll lend consumers,
  • the interest rate they’ll charge on loan,
  • how much of a down payment they’ll ask for, and
  • how long the loan will last.

As per the data and information shared by Experian for the past financial year 2020-21, the average interest rate for a super-prime new car buyer was expected to be 4.09%, whereas a subprime borrower had to pay 11.03% interest on that loan. In the case of a deep subprime borrower, the interest rate to be paid was 14.59%. Moreover, the deep subprime used automobile buyers were charged an average interest rate of 20.58 percent. This is more than five times the average super-prime buyers paid on used auto loans, which was 3.66 percent.

As a result, lenders that opt to provide loans to borrowers with low credit scores take a risk to lend money to them. Hence, there is a possibility that those with lower credit ratings are much more likely to default on their loans.

So to factor that extra risk on account of the lenders, the loan price carries with it an increased interest rate. All of this is done to show the importance of credit scores for both the borrower and the lender.

How can Credit score be improved?

Several factors can be considered to improve the credit score of an individual. If a person has bad credit and they are looking to make an investment, such as asking for an automobile loan from a financial institution like banks or credit unions, then they could use the following steps to improve their credit before they apply for the loan. The steps include:

Payment Record

A person’s payment record highlights some very important information which consists of the time they often pay the bills, if they have ever come to an occasion where they filed for bankruptcy, or if they were in a situation where the lenders had to take collective action against them.

Credit cards and other similar debts like mortgages and financial business accounts are usually excluded from an individual’s payment history.

Making monthly payments on time is the simplest approach to enhance people’s credit scores. It might be considered as a simpler approach if people were to set up their automated payments to ensure that they do not forget to pay their expenses in due time. Others, however, may need to make some changes in their lifestyle and cut back on unwanted expenses in order to fit their current obligations into their set monthly budget.

Amounts a person owes to others

How this component enters into your credit score is determined by a number of criteria. The Credit bureaus examine both the amount a person owes along with the overall amount of credit that they have available. Hence, they draw a comparison on how much amount an individual owes as opposed to how much money they have available. They don’t wish to see people reaching the maximum limit on their credit cards or having several credit cards with balances.

Reducing the balances on credit cards and other bills is the best method to enhance the credit score in this area. Paying the minimum amount on a person’s credit cards accomplishes little to reduce their balance; therefore, it’s wiser to pay more when it is possible. The initial thing to do is to pay the principal amount immediately on the card with an increased interest rate in order to learn to spend wisely and to pay on time. Next, the customer should then pay the amount he owes of all the other credit cards they have at their disposal. There will be a high interest on the loan amount, which they have to pay as well. An individual should carry on this activity until they are free from all sorts of debt on their cards.

Paying down a credit card and then closing the account is not a good idea. This lowers the overall amount of credit a person has been offered and can drastically increase their credit utilization rate. Even if they paid off a credit card, their credit usage percentage could rise. This will directly have an adverse impact on their credit score.

Account’s Age

The credit score is based on the length of time the accounts have been opened for. If the account has been opened and activated for a longer period, then this means it is much better for the credit score. In case a new account gets opened by that individual, then that would mean a reduction in their credit score, which adds an adverse impact. Several new accounts could indicate to credit bureaus that an individual is in financial trouble, which could result in a significant decline in their credit score.

Therefore it is advisable to keep the credit as solid as possible before buying a car. Don’t create any new accounts or close any old ones. People should make sure to log in to their earlier accounts, so they appear to be in use.

Moreover, people should not apply for new credit cards or any other sort of debt when they are getting ready to buy a new car. If this is not carried out, then it is possible that the credit score will drop to the point where a person will not be able to receive a loan. The worst-case scenario will be that the individual will be charged a greater interest rate than they were prequalified for.

Credit Mix

Credit bureaus prefer to see a variety of credit sources, such as credit cards, mortgages, instalment accounts, and other types of credit. Because many people don’t have numerous sorts of loans, it’s a good thing that this factor isn’t heavily weighted in their credit score.

The credit score in this area can be increased by not putting too much emphasis on the credit mix. Moreover, people should not seek out new types of credit only to add to it. In general, the credit mix improves as people get older that makes buying a house conveniently, and then they can apply for various sorts of financing.

Steps to be considered when applying for car loan having bad credit

These methods may increase your chances of being accepted for a car loan that is within your budget.

Examine your credit report to obtain good auto financing

Before you start looking for a vehicle loan, you have to check your credit score first. It is imperative to have a careful look at the credits reports, and in case there is information that is inaccurate, then that should be reported to the credit bureau. This is done because incorrect information has severe adverse effects that can hurt a person’s credit score. You can check your credit reports using some applications and for free available online.

If you don’t need a new car right away, building your credit first might be beneficial for you. This will get a person a cheap interest rate that is economically good. In case a car loan is needed as soon as possible, then asking a family member or a friend to vouch for you and, in doing so, co-signs that you will pay all due on time would be a viable option.

Prepare for a down payment for the car

Starting early, which involves an individual to save money for a down payment, can have many perks. Firstly, if an individual has poor credit, then it will be in his best interests to pay for a down payment as early as possible to avoid any inconvenience. In case a down payment is not prepared for, then this means a lender is taking on some additional risks to loan you the amount needed, and the worst-case scenario is that you would have your car repossessed by the lender if you are unable to make the payments in due time. Some lenders, in fact, may ask you to put money down.

By providing a down payment, there is always the advantage to pay less interest on the money that was loaned to you. This is because if a person pays a good amount of money as a down payment, then he would require less money to be borrowed, which is economically beneficial. As a result, you’ll pay interest on a lesser debt, minimizing the overall amount of interest you pay.

Calculate how much you can spend when applying for car loans

It is considered a smart move to evaluate the amount you can borrow and calculate the monthly deposits that would be needed to pay for the loan. Consider the costs of owning a car, such as gas, routine maintenance, auto insurance, and any parking fees or property taxes, and budget for them.

There is always an option to extend the loan term up to a couple of years in order to pay the least amount of monthly deposits. People, who can afford to be liable for such kind of loan for a longer period, may take up on this offer. However, some people don’t wish to opt for long-term loan agreements for the sole reason that they would need to pay interest for the loan and for the time the agreement has been extended. So it is wise to weigh all the options that do not require you to think again once you have made a decision. There have been situations where people ended up selling their car because they could not pay the interest payments for a long period.

Examine a variety of lenders to get the best loan

Comparing rates and loan terms from several lenders will help you locate the best loan for your requirements and budget. Here are several lenders to consider if you have terrible credit:

Your current bank or credit union offers an auto loan

Having a bank or credit union account may be an excellent place to start.

Lenders available online for bad credit auto loan

Car loans for bad credit are a specialty of several internet lenders and lending platforms. There is an option where an individual can go onto the relevant website and apply for a car loan. This kind of loan is referred to as a preselected car loan. If you’ve been shortlisted, you’ll be able to discover what loan rate and conditions you could be eligible for. Prequalification isn’t a guarantee that you’ll be accepted for the loan or that the predicted loan conditions will be met.

Automobile dealerships that provide bad credit car loans

Since the dealerships have been in this business for a long time, so they have established connections and working relations with banks and other similar financial institutions. Hence, they will be able to help a borrower connect with a lender that would suit them both perfectly for a car loan. Some dealerships even offer specific finance divisions for those with bad credit.

Buy now and pay later for dealerships. A buy-here, pay-here dealership may be an option if you can’t get accepted for an auto loan somewhere else and you need a car but only as a last option.

Top 7 Car Loans for Bad Credit

Getting a vehicle loan with terrible credit might be difficult, but there are certain lenders who cater exclusively to persons with poor credit. To assist you in your search, we’ve looked into various bad credit vehicle loans.

Prestige Financial

People who find themselves in situations like bankruptcy are often found applying for such a loan.  Bankruptcies have a major negative influence on your credit ratings, which might make it difficult for you to qualify for a car loan. People who have filed for bankruptcy, on the other hand, are considered by Prestige Financial. More information about Prestige Financial vehicle loans may be found here:

Program with lower interest rates suitable for a loan

 For qualifying borrowers who make on-time payments, Prestige Financial provides an interest rate reduction program. You could be able to lower your rate by 0.5 percent every three months or up to 2% every year. However, it’s worth mentioning that your annual percentage rate, or APR, would only go down to 14 percent, which is still rather high.

Joint applications are permitted for credit auto loans

 Individual and combined applications are accepted by Prestige Financial. This provides an edge to both of them as they both are equally responsible for meeting the loan payments, and since they both share the burden, so it is relatively convent to pay back the loan with interest in due time. Therefore, if a person can get connected with an individual that has a good credit score, then they could both apply for the car loan with a lower interest rate, and the probability of getting a loan also increases.  Prestige Financial does not accept co-signers because they are only responsible for the loan if you default.

Monetary requirements for credit auto loans

If you’re applying alone, you must make at least $2,250, and if you’re applying with a co-applicant, you must earn at least $2,750. Self-employment income will not be taken into account by Prestige Financial when calculating your capacity to repay your loan.


This is good for people who have a good range. Autopay provides a variety of vehicle loans, including new and used automobile dealer loans, private party loans, and a variety of refinancing alternatives, including standard, cashback, and lease buyout refinancing. More information about Autopay auto loans may be found here.

Availability of different loans, each having different loan amounts

Autopay offers loans in quantities ranging from $2,500 to $100,000, with durations ranging from 24 to 84 months. (On Credit Karma, Autopay may have different conditions.) It is to be noted that although a long-term loan eases the number of monthly deposits that are needed to be paid, a person does end up paying more interest over a period of time.

Possibility of submitting an application for prequalification for a bad credit auto

You may examine your anticipated rates and loan conditions without harming your credit scores if you prequalify for a vehicle loan. Prequalification, however, does not ensure acceptance or precise terms. If a situation arises where an individual is allowed to apply for a prequalification loan, then the person has to submit a formal loan application to start the process in formal ways.

Several offers for credit car loans

Autopay isn’t a financial institution. But rather, it’s an online platform that is designed in a way to connect the borrower with as many car lenders as they can that fit like a good match, and in the end, it is up to the borrower to select which lender will they go with, provided that they agree on the terms of the loan.

Additional services and goods offered along with a loan

For a price, Autopay offers car servicing contracts and guaranteed asset protection insurance. One type of guarantee is offered by GAP insurance that helps a borrower protects their car from unwanted incidents like stealing or accidents. GAP insurance covers a specific amount of cost to cover up the damage and reduce the liability on the borrower.  


This auto loan is suitable for people who love to shop around. Comparing vehicle loan offers from several lenders might help you find the best deal. MyAutoLoan is an online platform that helps the borrowers who are looking for car loans with the lenders that are waiting for customers to come to them asking for car loans where they can pitch the terms of agreement etc. So the platform has specific lenders in its system with whom it connects with the borrowers. It is very efficient, and the response time is so fast that a person can receive multiple offers within minutes. Here are some further details regarding MyAutoLoan.

Criteria for eligibility for bad credit car loan

Lenders have different eligibility restrictions. To be granted a loan, a person has to be more than the legal age of 18 years, they need to have a FICO score no less than 575, and the minimum annual income should at least be $21000.


Lenders are willing to accept people who have declared bankruptcy, and their information is available with MyAutoLoan such that the bankruptcy is dismissed (as per the latest update on their network).

Type of Loans

MyAutoLoan provides a variety of vehicle loans, including new and used automobile loans, private party, lease buyout, and refinance loans.

Calculator for interest rates for estimating auto loan payment

The interest rate calculator on MyAutoLoan shows you your anticipated rate depending on the loan type, loan amount, and credit score.

Credit Acceptance Corp.

This auto loan is suitable for people who do not have jobs or who are unemployed. Credit Acceptance Corp. specializes in offering vehicle loans to persons who have had financial difficulties, such as those receiving unemployment benefits. Here are some more specifics on Credit Acceptance Corp. loans.


Credit Acceptance Corp. is a lender that provides loans through participating dealerships. While these dealerships may be found in all 50 states, there is no assurance that one will be close to your house.

Types of loans

Credit Acceptance Corp. provides finance for new and used automobiles purchased through a partnering dealer.


Credit Acceptance Corp. takes applications from persons whose credit records show an open bankruptcy.

Capital One Auto Finance

This auto loan is suitable for prequalification. Some lenders won’t let you prequalify for a vehicle loan without doing a rigorous credit check, which might harm your credit score. After people have applied for a prequalification loan with Capital One Auto Finance, they are given the opportunity to the estimated loan they will be offered along with the interest rate and other loan terms. All this is done so that if some people choose to back out, that does not harm their credit scores in a negative way. To find out if you’re accepted and obtain your final loan terms, you’ll need to fill out a full application. More information about Capital One Auto Finance may be found here.

Dealership restrictions for bad credit auto loans

One of the mainstream restrictions is that all loans that get approved by Capital One Auto Finance can only be utilized at their designated dealerships. Individuals cannot utilize it at other dealerships that are not registered by the company.

Eligibility requirements for bad credit auto loans

To be granted a loan, a person has to be more than the legal age of 18 years, they must live in or near the contiguous states in the USA, and the minimum annual income should at least be $18000.

Types of loans

Capital One Auto Finance can help you get a loan for a new or used automobile from a dealer, or you may refinance an existing auto loan with another lender.

Amounts of loans

Capital One Auto Finance’s minimum loan amount is $4,000. Your credit history, income, and other criteria all play a role in determining your maximum loan amount.

Shopping for an automobile over the internet

With Capital One Auto Finance’s Auto Navigator tool, you can look for automobiles that meet your criteria while also looking for financing.


This auto loan is suitable for one-stop shopping. Carvana is a well-reputed company that is widely known for its network of cars and car parts, lets people buy their cars, and in doing so they can also search about the financial cost related to the car and the best place to buy it. Here is some additional Carvana information.

Possibility of submitting an application for prequalification

Carvana provides a prequalification service that allows you to evaluate projected rates and terms without harming your credit ratings. Some auto lenders only provide prequalification for a period of 30 days. However, Carvana’s offers are valid for 45 days.

One kind of loan is offered

Carvana exclusively provides financing for its used automobile inventory that is currently in stock. You’ll need to negotiate with a different lender if you want a different form of vehicle loan or don’t want to be limited to Carvana’s inventory.

Co-signers are not accepted

Co-signers are not permitted at Carvana. You’ll have to negotiate with a separate lender if you wish to apply with one.

New Roads

This auto loan is suitable for interest rate discounts. When you have bad credit, it might be difficult to qualify for affordable rates. New Roads is a company that offers the best interest rate savings on some particular pre-owned and new model cars that are certified. In this way, a person can save money on interest. More information on New Roads vehicle loans may be found here.

No deposit is required

New Roads does not demand a deposit. However, if you don’t have one, you’ll have to borrow more money and pay more interest over the course of the loan.

Repossession and bankruptcy

New Roads accepts applications from those people that filed for bankruptcy and therefore evaluate each case separately and check out their credit records.


You can apply with a co-buyer with New Roads.


Buying a car is frequently a high-pressure sell that can have a big positive or negative impact on your credit score. That is why, no matter how much you want a car, it is critical to do your homework and take your time.

If you want a car that costs more than you can afford, don’t accept a longer loan term in order to save money on monthly payments. You will pay more in interest over the life of the loan if you accept longer terms on a car loan, and you may end up paying more for the automobile than it is worth over time.

Making on-time payments and reducing your debt after you’ve been accepted for a loan might help you develop a favorable payment history and enhance your credit over time.

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Robert Ferry

We are an unbiased knowledge center for finance and our goal is to help you make your own, educated decisions about getting your credit life turned around.