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Are there car loans for people with bad credit?

When my credit score was on the wrong side of 600, I often wondered if I would be able to get a car loan. Needless to say, I crunched the numbers and did a little research to see what car loans were available for people with lackluster credit scores. 

So, are there car loans for people with bad credit? Yes, there certainly are. However, bad credit car loans often come with higher interest rates and stricter terms than typical car loans. In most cases, a down payment is needed as well. Combined with higher rates, the dealer or lending institution is able to minimize their financial risk in the event of a default. 

Many car buyers fall in love with a car and choose whatever loan option the dealer offers, but there’s a lot to choosing a car loan. Often, a fraction of a percentage can result in a considerable sum. The good news is even with bad credit, it’s still possible to get a great deal on a great car. All it takes is a little research, know-how, and sage advice. 

Car Loans for People with Bad Credit


If you have a sub-600 credit score, then unfortunately, in the eyes of the credit bureaus and auto loan lenders, you have bad credit. Don’t panic. While your options may be a bit more limited compared to good credit car buyers, you can still finance the car of your dreams, or at least one that meets your needs. 

However, car loans for people with bad credit come at a cost, literally. Car loans for bad credit borrowers have higher interest rates than typical car loans. This is simply the premium you pay for having a poor credit score. 

Car loan lenders charge higher interest rates to people with poor or bad credit in order to minimize the financial impact of a default, which, to be honest, is more likely to occur with someone with a less than stellar credit history. 

While someone with a credit score of 780 can enjoy interest rates as low as two percent, a borrower with bad credit may need to pay an interest rate of 15 percent or more. This makes comparing rates an absolute must. 

Car loan lenders also typically require bad credit borrowers to put some skin in the game so to speak by making a down payment. How much you'll need to put down will depend on your credit score and the amount of the vehicle you’re financing. The good news is after making the down payment and signing the papers, you can drive it right off the lot. 

That being said, if you have your heart set on riding off into the sunset in a brand-new vehicle, you may need to think again. Although some lenders will approve new car financing for people with questionable credit histories, most prefer to offer used car financing instead in order to avoid taking on bad debts. 

Nonetheless, regardless of your credit score, you’ll still have a wide-variety of cars to choose from. You’ll also be able to: 

Just remember, as is the case with any type of auto loan, the lender will place a lien on the vehicle and hold onto the title until the loan is paid off. At that time, they will send you a new title free and clear without any lienholder designation. 

Why You May or May Not Want a Bad Credit Car Loan


Very few things are cut and dry or black and white. This is true of car loans for people with bad credit. While there are plenty of pros to choosing this popular loan option, like everything else in life, there are some cons as well. Here’s a look at a few of each: 

Pros: 

• There are plenty of cars to choose from. 

A bad credit car loan allows you to buy the perfect car for your lifestyle and needs. From ultra luxurious to off-road ruggedness, there’s a wide-variety of vehicle models to choose from. 

• You can drive away today. 

If you need a car like yesterday, a bad credit auto loan will allow you to drive right off the lot as soon as today. In a hurry? Just make the required down payment if needed, sign the papers, and you’re good to go

• You can improve your credit score and history. 

It won’t have an immediate effect, but making monthly auto loan payments will improve your FICO score and automotive credit history over time. By doing so, you’ll be able to secure a better rate and terms on the next car you purchase. 

• You can become eligible for refinancing. 

Refinancing can allow you to take advantage of national interest rate reductions and enjoy a lower monthly payment without extending the life of the loan. 

Cons: 

• You will probably pay more. 

A bad credit car loan can be a costly option. Unfortunately, for people with bad credit, it can also be their only option. 

Why are they so expensive? In two words: interest rates. In addition to often requiring the initial expense of a down payment, most car loans for people with bad credit have higher interest rates that increase the monthly payment and overall cost of the loan. 

• There are more limitations. 

Not only may a down payment be needed, but not all dealers offer new cars for people with bad credit. This can be frustrating, especially since the vehicle will have a lower trade-in value after paying off the loan. 

What is the Average Car Loan Payment for People with Bad Credit?


According to recent statistics, the average monthly payment for a bad credit car loan is around $500. However, this figure can vary greatly depending on several factors. 

One of these factors is the down payment. In nearly all cases, the more you put down, the lower your monthly payment will be. 

While saving can be difficult, especially if you’re on a tight monthly budget, it’s worth doing so and paying a nice cash down payment in order to minimize your monthly debt load. 

Obviously, your credit score is another factor. The lower your score, the higher your interest rate and monthly payment will be. 

If times are tight and you want the lowest possible monthly payment but can’t save for a hefty deposit, you should take steps to increase your credit score before applying for a bad credit auto loan. 

Minimum Requirements for Bad Credit Car Loans

Don’t let bad credit get you down. If you desperately need a car but have a poor credit score, you may still be eligible for a car loan simply by meeting the following minimum requirements: 

  • Driver’s license, passport, or other proof of identity
  • Proof of residence with a minimum current residency of at least three years
  • Cell phone number to contact you
  • Minimum permanent income of $1,500 or more
  • Maximum debt-to-income ratio of 43 percent
  • Active bank account for automatic deductions 

Lending requirements differ from one lender to the next. However, if you meet all of these minimum requirements, you can almost certainly qualify for a new or used car loan regardless of your credit score.

Tips for Buying a Car with Bad Credit

If you have bad credit, there some things you can do to secure financing, have a lower rate, and enjoy lower monthly payments.

One of the first things you should do is download a copy of your credit report. Doing so will allow you to fix any errors, sort out any issues, and avoid losing application charges on lenders whose requirements you don’t meet.

Smart car buyers also save up a considerable down payment. Putting down a hefty deposit will lower your interest rate, substantially reduce your monthly payment, and allow you to pay off the loan sooner rather than later.

Last but not least, make your car loan payments on time. On-time payments will boost your credit score, help you avoid costly late fees, and keep you from falling behind.

Related Questions


What is a cosigner? A cosigner is a relative, friend, or anyone else who signs onto the loan with you in an attempt to win a creditor’s trust. The cosigner assumes the financial responsibility to make skipped payments or take over the loan should you suffer a severe injury or pass away. 

While not always the case, first-time car buyers with minimal or poor credit history often require cosigners in order to secure financing. A cosigner should have an excellent credit score, an extended proof of residency, and a net monthly income sufficient enough to take over payments if needed. 


What is a cosigner?


A cosigner is a relative, friend, or anyone else who signs onto the loan with you in an attempt to win a creditor’s trust. The cosigner assumes the financial responsibility to make skipped payments or take over the loan should you suffer a severe injury or pass away. 

While not always the case, first-time car buyers with minimal or poor credit history often require cosigners in order to secure financing. A cosigner should have an excellent credit score, an extended proof of residency, and a net monthly income sufficient enough to take over payments if needed. 

Is there a difference between interest rate and APR?

APR is short for annualized percentage rate, which simply put, is the cost of borrowing money. The higher the APR of a car loan, the more it will cost you each month and in the long run. 

Many people think APRs and interest rates are one in the same. While this is often the case for credit cards, when it comes to car loans, the two terms are quite different. 

An interest rate is simply the percentage of the total loan balance. An APR, on the other hand, includes the interest rate as well as the loan origination fees, transaction fees, and so on. Therefore, it’s important to check both the interest rate and the APR when shopping for a car loan.

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