back to articles | October 31, 2022 | Moses Mwangi

Categories: Tips & Insights For Car Buying Auto Loans & Financing Vehicle & Buying Research

How To Get an Auto Loan with Bad Credit

It might seem daunting to qualify for a car loan with a bad credit score, but the good news is that it's possible. There are many lenders and car dealers out there that are willing to work with low and bad-credit score borrowers.


It might seem daunting to qualify for a car loan with a bad credit score, but the good news is that it's possible. There are many lenders and car dealers out there that are willing to work with low and bad-credit score borrowers.

No minimum credit score is required to qualify for a car loan, meaning people with bad credit scores might only need to find the right lender or loan to get behind the wheel. Furthermore, if all goes well and you make your payments on time, it can help improve your credit profile. Here are a few things you can do to boost your chance of getting approved for an auto loan with bad credit.

1. Check your credit score and improve it if possible

It's crucial to check your credit score and history before you begin shopping for a car loan. Review your credit report for incorrect information and dispute any errors. Inaccuracies in your account can reduce your credit scores and hurt your ability to qualify for a car loan. If you are not in a hurry to get a car, take your time to improve your credit score. This may help you get a lower interest rate and better terms, which could save you money in the long run.

According to FICO, your credit score will fall into one of these categories:

  • Below 579: Poor
  • 580 to 669: Fair
  • 670 to 739: Good
  • 740 to 799: Very Good
  • Above 800: Exceptional

You can check your credit report for free on Credit Karma or request one from each of the three bureaus through

2. Save for a down payment

Although it might be hard to have extra money on hand while still paying your bills, putting down a few hundred dollars for a car can persuade the lender to approve your loan. Making a down payment on a vehicle proves your seriousness to the dealer or seller. In addition, a huge down payment lowers the risk to your lender, which can help you secure a lower interest rate on your car loan and save you money over time. A 20% down payment is recommended for a car purchase, but to buy a vehicle with bad credit, the larger the down payment you make, the better.

3. Determine how much you can afford

Assessing how much you can afford is critical before you start looking for an auto loan. Figure out your monthly payments, including your loan payment, gas, auto insurance, and upkeep, as this will determine how much car you can afford. The more expensive a car is, the higher the monthly and down payment you will need to pay.

It may be tempting to extend your loan term to six or seven years in order to get a lower monthly payment, but remember that a longer loan term means you could end up paying more in interest. In addition, you increase your risk of becoming upside down on your loan, which may bring challenges when you decide to sell or trade-in your car.

4. Get pre-approved for a loan

Getting pre-approved for a car loan helps you set a realistic budget for your vehicle purchase since it lets you know how much you can borrow and at what interest rate. When you have a preapproval letter ready, it will help you know which cars are within your price range, and you can use a record of your preapproval to negotiate a fair purchase price.

Consult your bank or credit union about getting a car loan to know the approval process. If you are unable to get pre-approved with either of these two, your vehicle dealer can be able to connect you with a lender who serves car buyers with poor credit. However, be sure to review the terms and charges before signing the car loan. Not every lender is fully regulated by the federal government, so take some time to review the terms.

5. Shop around for the best car loan

Rates and loan terms on auto loans vary greatly, so it's crucial to compare various lenders before applying for a loan. Shopping around and comparing loan terms and rates across multiple lenders can help you find the best loan for your budget and needs.

There are thousands of online lenders that give a range of car loan interest rates on their websites, so look at lenders that offer loans to people with lower credit scores. Although these lenders might offer car loans at higher interest rates, they help those with bad credit get approved.

Once you start applying for a car loan, you have two weeks to apply for as many as you would like. However, a hard inquiry will be recorded in your credit reports each time a lender reviews your credit score. To minimize the impact shopping for a car loan can have on your credit, look for rates within the same time period.

6. Find a co-signer

Adding a cosigner to your car loan application can increase your chances of getting approved. Ask someone you trust, such as a parent, relative, or friend, to cosign your auto loan. If your co-signer has a healthy credit score and good income, you should qualify for an auto loan with a lower interest rate than you would secure on your own.

However, you must be very careful when you decide to get a cosigner since your actions can affect them in the long run. For instance, if you default on your auto loan, they will be required to make the payments for you. In addition, if you miss or make a late payment, this will directly hurt your cosigner's credit score. Therefore, if you decide to get a cosigner, ensure that you have enough funds to make the necessary payments whenever they are due.

Final thoughts

There are car loans for bad credit out there, but buying a car with poor credit could mean you will spend a bit more to borrow. Fortunately, taking some steps to build your credit before your car purchase can minimize some of the financial burdens.

If you can't hold up your vehicle purchase, consider buying a less expensive but reliable car that meets your needs and requires you to borrow less. As you pay off your loan and work on improving your credit score, you can be able to refinance your car loan for a better rate down the line.