Yes, you can get a car loan with bad credit, but you will pay more for it

Lenders do offer car loans to people with credit scores below 620, which most lenders consider "bad credit." The difference is not whether you can borrow — it is the interest rate you will pay and the terms attached. A borrower with a 580 credit score might pay 10 to 18 percent annual interest, while someone with a 750 score pays 4 to 6 percent. Over a five-year loan, that difference amounts to thousands of dollars in extra payments.

The mechanics are straightforward: subprime lenders, credit unions, and some traditional banks have programs for lower-credit borrowers. They offset the risk of default by charging higher rates, requiring a larger down payment, or both. Some will require a co-signer — someone with better credit who promises to pay if you do not. Others will require you to put down 15 to 25 percent of the car's price upfront, compared to 10 percent or less for prime borrowers.

Key Takeaways

  • Interest rates for bad-credit car loans typically range from 10 to 18 percent, compared to 4 to 6 percent for borrowers with good credit, adding thousands to the total cost.
  • Credit unions often charge lower rates than subprime lenders and may consider factors beyond your credit score, such as employment history or savings.
  • A larger down payment — 15 to 25 percent of the car price — can lower your rate and reduce the lender's risk.
  • Adding a co-signer with better credit can improve your approval odds and rate, but they are legally responsible if you stop paying.
  • Dealer financing and buy-here-pay-here lots offer quick approval but often come with the highest rates and strictest terms.

Where bad-credit borrowers actually get approved

Three main sources lend to people with low credit scores. Subprime lenders specialize in this market and approve quickly — often in hours — but charge the highest rates. Companies like Santander Consumer USA, Westlake Services, and Ally Bank have subprime divisions. Credit unions typically charge 2 to 5 percentage points less than subprime lenders and may look at your full financial picture rather than just your score. You must be a member, but many credit unions have low or no membership fees. Traditional banks have bad-credit programs, though approval is less certain; they often require a co-signer or substantial down payment.

Dealer financing is a fourth option, but it works differently. The dealer arranges the loan through a lender, then sells that loan to a bank or finance company. Dealers can approve people quickly because they profit from the sale regardless of whether you pay. However, dealer rates are almost always higher than direct lender rates, and dealers sometimes add hidden fees. Buy-here-pay-here lots — dealers that finance their own inventory — offer same-day approval but charge 18 to 29 percent interest and often require weekly or bi-weekly payments in person.

How your credit score affects the rate you receive

Lenders use credit scores as a shorthand for risk. A score of 300 to 579 is considered very poor; 580 to 669 is fair; 670 to 739 is good. Within the bad-credit range, the difference between a 580 and a 650 can mean 3 to 5 percentage points on your rate. A 580 might get 16 percent; a 650 might get 11 percent on the same car and loan term.

Your score reflects payment history (35 percent of the score), amounts owed (30 percent), length of credit history (15 percent), new credit inquiries (10 percent), and credit mix (10 percent). Lenders also look at your debt-to-income ratio — the percentage of your monthly income that goes to debt payments. If you earn $3,000 a month and already owe $1,500 in car payments, credit card bills, and student loans, a lender may refuse you or demand a co-signer, because adding a car payment would push you over 50 percent of income.

Down payment size and how it changes your approval odds

A larger down payment reduces the lender's exposure if you default and the car is repossessed and sold. It also reduces the amount you need to borrow, which lowers your monthly payment and makes you look less risky. For bad-credit borrowers, putting down 20 percent instead of 10 percent can mean the difference between approval and rejection, or between 14 percent and 10 percent interest.

If you have $3,000 saved and are buying a $15,000 car, that is a 20 percent down payment. If you have $1,500, that is 10 percent. Lenders often require a minimum down payment — sometimes $1,000 or $2,000 in cash — before they will even consider your process. Some subprime lenders will accept a trade-in as part of your down payment, which helps if you already own a car you can sell or trade.

Using a co-signer to improve your chances

A co-signer is someone — usually a family member or close friend — who signs the loan alongside you and agrees to pay if you do not. The co-signer's credit score and income are considered in the approval decision. If your score is 580 and your co-signer's is 700, the lender may approve you at a rate closer to what a 650-score borrower would receive.

The catch is real: if you miss a payment, the lender pursues the co-signer, not just you. Late payments appear on both your credit reports. If you default, the co-signer's credit is damaged as much as yours. Before asking someone to co-sign, be clear about this risk and make sure you can afford the payment. A co-signer should never be a surprise later.

What to expect in the process and approval process

Most lenders require proof of income (recent pay stubs or tax returns), proof of residence (utility bill or lease), a valid driver's license, and proof of insurance before funding the loan. Some ask for bank statements to verify you have the down payment in cash. The process usually takes 24 to 72 hours for subprime lenders and credit unions, though dealer financing can close the same day.

Lenders will pull your credit report, which triggers a hard inquiry that temporarily lowers your score by a few points. Multiple inquiries within two weeks usually count as one inquiry, so shopping around with several lenders in a short window does not hurt as much as it sounds. However, explore with many lenders over several months will accumulate inquiries and damage your score further.

Comparing rates across lenders before you commit

Get a rate quote from at least three lenders before signing. Most subprime lenders and credit unions will give you a pre-qualification or pre-approval quote without a hard credit pull, or with a soft pull that does not affect your score. This lets you compare rates and terms without the damage of multiple hard inquiries. Write down the interest rate, loan term (36, 48, 60, or 72 months), monthly payment, and any fees — documentation fees, origination fees, or prepayment penalties.

A 72-month loan has a lower monthly payment than a 48-month loan, but you pay more interest overall. A $15,000 loan at 12 percent costs about $355 a month for 48 months (total paid: $17,040) or about $295 a month for 60 months (total paid: $17,700). The extra $660 in interest buys you a lower monthly payment, which matters if cash flow is tight. However, if you can afford the higher payment, the shorter term saves money.

Red flags and terms to avoid

Some lenders use predatory practices that trap borrowers in cycles of debt. Avoid lenders that charge prepayment penalties — fees for paying off the loan early. Avoid loans with GPS tracking devices or starter interrupt devices (which disable the car if you miss a payment) unless you have no other option; these are common at buy-here-pay-here lots and add to the cost and stress. Be wary of lenders who pressure you to buy add-ons like gap insurance or extended warranties at inflated prices.

If a lender asks you to sign blank documents, misrepresents the interest rate, or pressures you to co-sign for someone else's loan, walk away. Legitimate lenders provide written quotes, explain all terms before you sign, and give you time to review documents. If something feels wrong, it probably is.

Frequently Asked Questions

What credit score do I need to get a car loan?

Most lenders will consider scores of 580 and above, though some subprime lenders go as low as 500. Scores below 620 are typically classified as bad credit. The lower your score, the higher your interest rate and the larger your down payment requirement.

Can I get a car loan with no credit history?

Yes, but it is harder. Lenders with no credit history to review often require a co-signer, a substantial down payment, or both. Credit unions are more likely to consider factors beyond your credit score, such as employment history and savings. Building credit by becoming an authorized user on someone else's account or getting a secured credit card can help before you explore.

How much will my interest rate drop if I improve my credit score before explore?

The improvement depends on how much your score rises and which range you move into. A jump from 580 to 620 might lower your rate by 2 to 3 percentage points. A jump from 620 to 680 might lower it by another 2 to 4 points. If you can wait three to six months to pay down existing debt or dispute errors on your credit report, the savings can be substantial.

What happens if I cannot afford the monthly payment?

Contact your lender when ready if you know you will miss a payment. Some lenders offer loan modification or forbearance programs that temporarily lower your payment or extend the loan term. Missing a payment without contacting the lender damages your credit and can lead to repossession. The car can be sold at auction, and you may still owe the difference between the sale price and what you borrowed.

Is it better to buy from a dealer or a private seller with bad credit?

Dealer financing is faster and requires less paperwork, but rates are higher. Private sellers require you to arrange your own financing, which takes longer but often results in lower rates from credit unions or banks. If you buy from a private seller, get a pre-approval from a lender before you make an offer, so you know your budget and can negotiate with confidence.