How to Get a Car Loan with Bad Credit

Getting Through Regardless of Your Financial Situation

Getting a car loan with bad credit (below 580) is not impossible. Most times, it is simply expensive. This is because lenders often use your credit score to determine how likely you are to repay your loan. With a lower score, they believe they are taking on more risk and would, therefore, increase the interest rate.

However, you can still improve your chances of getting relatively favorable terms on your car loans. The steps below will show you how to get a car loan with bad credit.

Check Your Credit Score

The first thing to do before considering getting a car loan is to check your credit score by requesting a credit report. As mentioned earlier, lenders determine the interest rate to offer you based on your credit score. So, you need to know your score to know what to expect.

Credit scores are typically from 300 to 850. 800 to 850 is regarded as excellent, while below 580 is poor. And knowing your credit can help you set your house in order before applying for a loan. You can review your report for discrepancies that could hurt your success with a loan application.

Besides that, you can postpone getting a loan - if it is not urgent - to work on improving your credit by clearing off outstanding payments.

You can check your credit at any of the three credit bureaus: Equifax, Experian and TransUnion.

Determine How Much You Can Afford

The next thing to do is to assess your income and determine how much you can afford. You need to be honest with yourself at this stage and prepare based on your income and debt level rather than taste.

Understand that you don’t have the luxury of buying a car simply because it’s a preference, and decide based on what’s sustainable. You may find it wiser to buy a car whose repayment you can handle in a shorter time than one you would have to spread over many months because the interest rate would add up.

So, create a budget that wouldn’t further hurt your credit score and wouldn’t hurt other important financial commitments.

However, consider other additional costs such as auto insurance, maintenance fees, registration fees, fuel costs, parking, property taxes and other associated costs.

Save for a Down Payment

Seeking an auto loan with bad credit might require a down payment. But even if the lender doesn’t require it, it could help you secure a loan with better rates. This is because having a down payment can increase the lender’s trust in your ability to repay the loan, hence, their willingness to take more risks on you.

So, consider postponing getting the car immediately to save towards a down payment if you don’t already have it in hand.

Consider a Co-Signer

Going to the negotiation table with a co-signer is a great way to secure great deals if you have a bad credit score. The co-signer must be someone with a stable source of income and a great credit score. They serve as a sort of guarantor that would pay the loan in your place if you cannot.

So, with a co-signer, you stand a chance of getting more trust from lenders and, thus, better rates.

How to Get Approved for a Car Loan with Bad Credit

There are several ways to get approved for a car loan with bad credit. As you already know, lenders are not always exactly willing to give out loans to borrowers with bad credit. However, it is not impossible; you can increase your chances of getting approved.

Approach Your Bank or Credit Union

Reach out to your financial institution for your financial information as well as information on the best car loan terms for you based on your credit score. Knowing the amount you are willing to spend on a car, approach them to ask for a rough estimate of a convenient monthly repayment plan for you.

You can also ask for a preapproval letter to take to the dealership, as this would increase your chances of getting better rates. This would especially work if you have an established relationship with the bank or credit union.

Go Directly to the Car Dealership

The car dealership can also help you secure a loan with the lenders or banks they are associated with. However, bear in mind that they may require a commission for their service. And not all of them are reputable.

So, it is advisable to read the fine print thoroughly; make sure to understand and agree with every sentence before signing on. And if any term looks too good to be true or too costly, don’t hesitate to reject it.

Shop Online

You can also get approved for auto loans online. And in most cases, they come cheaper as the online shops are not dealing with the cost of a physical shop. Many offer prequalification to show you what you qualify for based on your financial information before offering the loan.

However, considering it is online, do thorough research and only shop with reputable websites.

How to Secure Low Rates and Low Payment Plans

Compare Rates

It is not advisable to apply for a loan with the first lender you encounter; you should shop around and compare rates and terms before making a decision.

Go with a Friend

Lenders are salesmen, and their job is to get you to get a loan, whether it is favorable for you or not. So, consider going with a friend - especially one with great negotiation skills - to increase your confidence to negotiate the best price for you.


You need a lot of patience to get a car loan with bad credit. So, take your time, do a lot of research and pay attention to every detail.

Learn more about balance transfer credit cards.