Auto Loans for Bad Credit: Best Deals and Get Approved
Do you want to buy a car but are having trouble because of your poor credit score? Don’t worry! You can still find respectable auto loan options even if your credit is poor. With the correct information, you can definitely get the car of your dreams without getting caught in the bad loan trap, even though the interest rate will be a little more. In this article, we’ll explain how to obtain a car loan for terrible credit. Including which lenders to look at, learn how to increase your approval chances and avoid potentially disastrous financial situations.
Can You Get A Car Loan with Bad Credit?
It is commonly believed that if you have poor credit, getting a car loan is impossible. This is not true. You can get a car loan with bad credit. While the terms and rates may not be as good as they would be with good credit, many lenders offer car loans to people with bad credit. Let’s take a quick look at your chances of getting approved and how your credit score affects your car loan.
Many lenders offer auto loans for bad credit
While a bad credit score will make it more difficult to secure an auto loan, there are many institutions that will approve you for a loan. Of course, this is with the anticipation of requiring higher interest rates and less attractive loan terms.
- Capital One Auto Finance: This one is providing a handy service by way of its new Auto Navigator program that enables shopping around and comparing finance rates and interest rates. This is all accomplished with ease and with the guarantee that there is no impact on your credit score.
- Auto Credit Express: Through a network of more than 1,500 agents and lenders in the US and Canada, it links borrowers with low credit ratings.
- myAutoloan: With only one application, this website may provide you with up to four loan options, allowing you to compare and select the best deal.
- Buy-Here-Pay-Here (BHPH) Dealerships: These are car dealerships that offer financing to consumers themselves, typically without a credit check. But the interest rates are higher than other sources of financing.
How your credit score affects car loan approval and interest rates
In fact, lenders use credit scores to identify the risk of lending you money. Your credit score is higher, generally speaking, the more likely you are to be able to get a lower interest rate, as well as better loan terms.
The average interest rates for new and used car loans, according to credit score, are as follows:
| Credit Score | APR (New car) | APR (Old car) |
| Prime (661-780) | 6.70% | 9.63% |
| Near Prime (601-660) | 9.73% | 14.07% |
| Subprime (501-600) | 13.00% | 18.95% |
| Deep Subprime (300-500) | 15.43% | 21.55% |
So, as you can see, people with bad credit scores (below 600) pay double or more in interest compared to people with good credit scores (above 661), and interest rates on used cars are always greater than new cars, as the lender’s risk is higher. So, people with bad credit scores must think twice before opting for a car loan. As interest charges will be much greater, enhancing your credit rating prior to borrowing money can pay thousands of dollars throughout the duration of the loan.
How Bad Credit Affects Auto Loan Approval
It is harder to get a car loan with poor credit. A low credit score can mean paying more interest and less favorable loan terms because most lenders see it as a risk to their investment. So what constitutes poor credit, and why does it have so much bearing on whether or not you will be able to get a loan?
What’s considered bad credit?
Your credit score is a value that shows your payment history, debt repayment capability, and your creditworthiness as viewed by lenders. It is usually calculated on the FICO range (300 – 850):
- 800+: Excellent
- 740 – 799: Very good
- 670 – 739: Good
- 580 – 669: Fair
- Below 580: Poor / Bad Credit
If your credit rating is below 580, you would have bad credit and would probably have highly decreased chances of obtaining a car loan.
Why lenders see bad credit as a risk
Banks and institutions typically estimate your risk level based on checking your credit history. If you have poor credit, these indicators will likely be suspicious:
- Late payments: Missing payments multiple times is a bad sign that you may not be able to repay a new loan on time.
- Heavy debt load: Having multiple loans to pay back makes lenders suspect whether you will pay back or not.
- Short credit history: Those with minimal borrowing experience can also fall under the high-risk category.
For this reason, you may be denied a loan if your credit is bad, or you may be given less favorable terms if you are granted one.
How bad credit impacts interest rates & loan terms
It is true that when you borrow money to buy a car with low credit, you may encounter issues that you did not anticipate. Here are some notes for your reference:
- Higher interest: For those with high credit scores (over 700), car loan interest rates are between 5-7%. But for those with bad credit, the percentage can be up to 15-20%, or even higher.
- Higher down payment: Some lenders force you to put down at least 10-20% of the value of the car in order to reduce their risk.
- Shorter repayment periods: Great credit holders may avail loans up to 72-60 months, but credit-challenged people may get loans for merely 36-48 months.
Subprime vs. Traditional auto loans explained
As you apply for a money loan to buy a car, you may have two general options: Subprime Auto Loans and Traditional Auto Loans. The difference between the two lies mostly with respect to loan terms and borrowers.
- Traditional auto loans: These are good credit loans (usually 670 or higher). These borrowers will be able to get a lower interest rate, longer loan period, and improved loan terms. These loans are less risky for banks, so the terms are improved.
- Subprime auto loans: Subprime auto loans are loans made to consumers with poor or bad credit (usually less than 580). They carry higher interest rates, larger down payments, and shorter loan terms.
The following table provides a visual comparison of traditional and subprime auto loans:
| Criteria | Subprime auto loans | Traditional auto loans |
| Credit score | Below 580 (Bad Credit) | 670 and above (Good to Excellent Credit) |
| Interest rate | 15-20% or higher | 5-7% |
| Down payment | 10-20% of the car’s value. | 0-10% of the car’s value |
| Loan term | 36-48 months | 60-72 months |
| Loan conditions | More difficult, may require collateral or stable income | Easier, lower interest rates, more favorable terms |
| Loan approval chances | Low approval chances, may be denied or require strict conditions | Easier to get approved with good credit |
| Risk for borrower | High, due to high interest rates and shorter loan terms | Low, due to low interest rates and longer loan terms |
Best Auto Loan Lenders for Bad Credit in 2025
It can be difficult for people with poor credit to get a trustworthy auto loan lender. For people who have poor credit, some of the best lenders of 2025 provide flexible options, competitive rates, and customized terms to enable you to get finance for purchasing your vehicle.
Capital One Auto Finance
Capital One Auto Finance has a straightforward auto loan application process. It is tailored for all credit histories, including poor credit. They offer competitive interest rates that are appealing. The conditions are flexible and can be adjusted to different financial situations. They also provide the convenience of online prequalification. This allows potential borrowers to check their eligibility without any impact on their credit score.
- Pros
- Easy online prequalification process
- Competitive interest rates for borrowers with good credit
- Quick and convenient loan process with flexible terms
- Cons
- Higher interest rates for borrowers with bad credit
- May require a minimum credit score for loan approval
Carvana
Carvana is this online spot where you can get loans and purchase used cars, particularly if your credit isn’t excellent. Their platform is so simple to navigate, so you can apply for a loan and grab a car all at the same time. And with no-haggle pricing and the ability to do everything from your couch, Carvana makes it really easy for people with poor credit.
- Pros
- 100% online process, making it convenient for borrowers with bad credit
- Transparent pricing with no-haggle negotiations
- Vehicle delivery directly to your home
- Cons
- Higher interest rates compared to traditional lenders for bad credit borrowers
- Limited car inventory depending on your location
Auto Credit Express
Auto Credit Express is a specialist in bridging the gap between people with bad credit records and banks or lenders that are more willing to approve requests for car loans. They have established a large network of lenders who are willing to provide flexible terms and conditions on loans, and through this, it becomes simple for people with low credit ratings to get the finance they require for their car purchases successfully.
- Pros
- Quick and easy application process
- Wide network of lenders offering competitive loan terms
- Cons
- Higher interest rates may apply due to subprime credit
- Limited loan terms for those with very low credit scores
- Loan approval might take longer compared to direct lenders
MyAutoLoan
This one is referred to as a loan marketplace that enables borrowers to see and compare offers from a large number of different lenders. It is particularly beneficial for individuals who may have bad credit, as it assists them in identifying suitable financing options by exposing them to numerous loan providers. By doing so, it significantly enhances the possibility of approval for loans, thereby easing the borrowing experience for the individuals involved.
- Pros
- Allows quick prequalification checks without affecting credit scores
- A wide variety of loan terms and conditions to suit various needs
- Cons
- Might require more documentation due to multiple lenders involved
- Loan approval can be delayed as it involves comparing multiple lenders
Buy-Here-Pay-Here (BHPH) Dealerships
Because they handle their own finance, Buy-Here-Pay-Here (BHPH) dealerships are unique and different from traditional vehicle lots. This makes it much simpler for people with poor credit to obtain auto loans. Unlike those traditional lenders that only look at your credit score, they also look at your ability to make regular payments. BHPH dealerships are therefore a suitable choice for people who have fallen on hard times because of a bad credit history or none at all.
- Pros
- No third-party involvement
- In-house financing, which can make the process quicker and more convenient
- BHPH dealerships are more lenient when it comes to credit scores, making them a good option for individuals with very poor credit or no credit history
- Cons
- Higher interest rates than traditional lenders due to the high risk associated with lending to individuals with bad credit
- BHPH dealerships may not offer the same variety or quality of vehicles as traditional auto dealerships
Further reading:
How to Increase Your Chances of Getting Approved
The following are five critical ways to increase your chances of getting approved for an auto loan:
Check your credit report and fix errors before applying
You should check your credit report before you apply for that car loan. Mistakes like accounts that aren’t reported or those that are reported late can totally skew your credit score. Fixing those mistakes might boost your score and make it more acceptable for approval. It’s a good idea to challenge any mistakes with multiple credit bureaus before you apply for the loan.
Save for a higher down payment to lower loan risk
Saving more money for a bigger down payment is one simple method to increase your chances of being approved. Because you are taking out a smaller loan, a bigger down payment lowers the lender’s risk. Those with bad credit may particularly benefit from this because a greater down payment demonstrates your commitment to the purchase and may result in better loan terms. Depending on the lender and your own financial situation, try to pay down at least 10–20% of the car’s value.
Consider a cosigner to improve approval odds
If you are unable to obtain a loan in your own name, a cosigner with strong credit can assist you. By pledging to repay the loan in the event that you are unable to, cosigners lower the risk to the lender. A loan with better conditions and a lower interest rate might be available to you. The co-signer’s credit may suffer if you fail to make loan payments, so be sure to discuss this with them.
Choose an affordable car that fits your budget
It is helpful to know the approximate value of the type of vehicle you wish to finance through a car loan and how much you can spend on it. This aspect is vital while you are trying to deal with a bad credit score. The lender will want to be certain that the car loan, after all financial obligations including budgeting for necessities, can be serviced from your discretionary income. Understanding what expenses will be bundled with the car helps you polish and tailor your chances for getting a favorable loan with lesser repayments. It goes without saying, but you need to ground your expectations realistically with regards to fuel, insurance, and budget among other expenses linked with operating a vehicle.
Shop around and compare loan offers
Shops offering loans try to woo people by making unreasonably lenient claims, and people are gullible enough to take them at face value. Always remember, no two lenders have the same requirements or rates. Results of this multiple offer analysis can help you come up with the lowest rate possible with minimal extra payments. Don’t be afraid to use strong language while negotiating with lenders, as well as credit unions, whose loans tend to have the most streamlined terms.
Auto Loans for Bad Credit: Avoiding Scams & Predatory Lenders
When looking for a bad credit car loan, you must watch out for scams and dishonest lending terms that will trap you in a financial situation which is difficult to escape.
Red flags to watch out for (extremely high APRs, hidden fees)
A scam lender is one who charges unusually high interest rates and fees. Processing and insurance charges on top of the lonesome 20% APR can cost you a fortune. Make sure you query the processing and reasoning behind such outrageous fees being added. Unbelievably high prepayment fees just add fuel to the fire. Always read the terms and conditions, no matter how tedious they look.
Buy-Here-Pay-Here dealerships
Buy-Here-Pay-Here (BHPH) dealerships are auto dealerships that are in the business of providing in-house financing, primarily to consumers with bad credit. While this may be enticing because they do not conduct credit checks, the bulk of BHPH lots offer extremely high financing rates and can demand more costs for vehicles than traditional lots. These dealerships frequently exclusively deal with consumers who do not qualify for loans from banks or credit unions, and they may try to persuade you into purchasing a car with inflated costs and unfavorable terms.
Yo-Yo financing scams
An auto dealership engages in a “yo-yo finance scam” when it lets you drive off with a car but later demands you return to sign a new contract with worse financing terms. The dealer will “rework” the contract and offer worse terms, such as a higher down payment or increased interest, after assuming you have been approved for the loan. These frauds usually occur when you have decided on an automobile and are ready to finalize the transaction. Ask for the entire contract before leaving, and sign only if you fully understand the terms to avoid issues.
What Interest Rates Can You Expect with Bad Credit?
Interest rates are greater for people with bad credit than for those with good credit. However, a number of variables, like the loan source, period, and credit score, will affect that interest rate.
Current average interest rates for different credit scores
Depending on your credit score, interest rates on auto loans can vary significantly. The average interest rates for the various credit score categories are as follows:
- Excellent credit (700+): 5-7%
- Good credit (670-699): 6-10%
- Average credit (580-669): 10-15%
- Poor credit (below 580): 20% or higher
In summary, auto loan interest increases directly with a declining credit score. Lenders perceive bad credit borrowers as riskier, so they charge them higher interest rates. These rates are useful to know while getting a loan as they help you understand ways to lower them, such as paying more upfront or getting a co-signer.
Why do bad credit mean higher APRs?
Having bad credit signifies a poor track record in managing finances – for instance, slow payment or even non-payment. This is risky for lenders and so they set forth higher interest rates which serves as a punishment for the expected default. Lenders set high interest rates to protect themselves against losses in case of default. Essentially, having bad credit means relying on harsher borrowing terms.
Negotiate better terms even with a low credit score
Despite bad credit, there is still a possibility of negotiating the most favorable terms for your car loan. While your credit score will impact the rate you’ll qualify for, there are some things that can be done to negotiate the most suitable deal for you:
- Make a bigger down payment: The larger the down payment you make, the lower the lender perceives your risk, and that might save you some money on interest. Making a large down payment shows your commitment to the loan and greatly reduces the lender’s financial risk.
- Choose a shorter loan term: Shorter loans have lower interest rates than longer loans. Yes, your monthly payment will be higher, but you’ll pay less interest throughout the life of the loan, so it’s a good long-term decision.
- Improve your credit score: If possible, attempt to increase your credit score prior to applying for that loan. Even a small increase in your score can assist you in getting lower rates.
You might also read:
FAQs – About Auto Loans for Bad Credit
Is it possible to secure a car loan approval when my credit score stands at 500?
Auto Credit Express and MyAutoLoan specialize in helping borrowers of auto loans who have a poor credit history. While getting a loan with a credit score of 500 is possible, it will come with much higher interest rates and unfriendly payments.
What credit score do lenders require as the minimum qualification for car loans?
Every lender has a different minimum credit score for granting a loan, and that minimum varies drastically. For most lenders, the cutoff car loan credit score is 500. A handful of lenders are willing to provide loans for borrowers with scores less than 500, but those scores come at the expense of exorbitant interest rates.
Is it possible to finance a vehicle when my credit score stands at 400?
A credit score of 400 dramatically lowers chances of getting an auto loan, though some Buy-Here-Pay-Here dealerships along with subprime lenders provide loans with them expecting the borrower to pay ridiculous amounts of interest in order to finance those loans.
Does CarMax approve of everyone?
CarMax extends loans to people with poor credit histories as long as they meet income and financial history requirements. They tend to approve applicants but you could face a higher interest rate or increased down payment requirements.
Final Thoughts: How to Get a Car Loan with Bad Credit
Finding an ideal car loan deal might be difficult if your credit score is low, but not impossible. While seeking financing, focus on a select few options and don’t spread your searches too thin. Compare multiple lenders to establish what loan terms and interest rates do not place you in a situation which further damages your finances. Keeping your credit score low will surely prove disastrous, but if you wait long enough, you will eventually get more favorable refinancing deals that offer lower interest rates. Lend your help securing a car loan for even the worst credit scores.
