Yes, you can get a car loan with bad credit, but you will pay more for it
Bad credit does not automatically disqualify you from borrowing. Lenders who specialize in subprime auto loans — loans for borrowers with credit scores below 620 — exist specifically to serve this market. What changes is not whether you can borrow, but the terms: a higher interest rate, a larger down payment requirement, a shorter loan term, or some combination of all three.
The lender's calculation is straightforward. A lower credit score signals higher risk of default. To offset that risk, they charge you more. A borrower with a 750 credit score might get a 48-month loan at 5 percent interest. A borrower with a 550 score might get the same loan at 15 to 18 percent interest, or be asked to put down 20 percent of the vehicle price upfront instead of 10 percent.
Your actual options depend on three things: how bad your credit is, what you can put down, and which lenders will work with you. Some credit unions and online lenders have looser credit requirements than traditional banks. Some dealerships have in-house financing or relationships with subprime lenders. Some require a co-signer. Understanding what each route costs you is the only way to avoid overpaying.
Key Takeaways
- Subprime lenders routinely issue auto loans to borrowers with credit scores below 620, but charge interest rates 5 to 10 percentage points higher than prime rates.
- A larger down payment — 15 to 25 percent of the vehicle price — can lower your interest rate or make approval more likely, even with bad credit.
- Credit unions often have lower rates and more flexible credit requirements than banks or dealerships, and membership may be open to you through your employer, school, or community.
- A co-signer with good credit can reduce your rate significantly, but they become legally responsible if you stop paying.
- The total cost of the loan — not just the interest rate — matters more than the rate alone; a shorter term at a higher rate can cost less than a longer term at a lower rate.
How credit score affects your loan terms
Your credit score is the first filter most lenders use. The three major credit bureaus — Equifax, Experian, and TransUnion — calculate your score based on payment history, amounts owed, length of credit history, credit mix, and recent inquiries. A score below 620 is typically classified as subprime or deep subprime (below 550).
Lenders use credit scores to predict the probability you will default. A lower score means a higher probability, so they price that risk into the loan. The difference is real: a $25,000 car loan at 6 percent interest costs $2,700 in total interest over five years. The same loan at 16 percent costs $10,700 in total interest. That extra $8,000 is the price of bad credit.
Your score is not the only factor. Lenders also look at the reason for your bad credit. A recent bankruptcy or multiple missed payments in the last year signals active financial trouble. A bankruptcy from five years ago with clean payments since then signals you have stabilized. The age of negative marks matters. Recent damage is worse than old damage.
Where to find lenders willing to work with bad credit
Not all lenders serve the subprime market equally. Banks typically have minimum credit score requirements of 650 or higher. Credit unions often go lower — some will work with scores in the 550 to 600 range. Online lenders and captive finance companies (financing arms owned by dealerships) routinely lend to borrowers with scores below 550.
Credit unions are often the cheapest option if you can join. Membership requirements vary. Some are open to anyone who lives or works in a specific area. Some are tied to an employer, school, or professional association. If you have access to a credit union, get a rate quote before going to a bank or dealership. Credit unions typically charge 2 to 4 percentage points less than subprime lenders.
Online lenders like LendingClub, Upstart, and Elevate operate entirely through their websites and often have faster approval processes than banks. They may also consider factors beyond credit score — income stability, employment history, existing debts — which can work in your favor if your score is low but your income is steady. The tradeoff is that online lenders sometimes charge higher rates than credit unions, though lower than dealership financing.
Dealership financing is the most expensive route but the easiest to access. Dealerships have relationships with multiple subprime lenders and can often get you approved the same day. The cost is high: dealership captive finance companies routinely charge 15 to 20 percent interest to deep subprime borrowers. Use dealership financing only if you cannot get approved elsewhere.
The role of a down payment in approval and rates
A down payment reduces the lender's risk in two ways. First, it lowers the amount you need to borrow, which means less total exposure for the lender. Second, it signals you have skin in the game — you have already committed your own money, so you are more likely to keep paying. Lenders reward both signals with lower rates or approval when they might otherwise decline.
With bad credit, a down payment of 15 to 25 percent of the vehicle price can be the difference between approval and rejection. A $20,000 car with a $3,000 down payment (15 percent) means you are borrowing $17,000. The same car with a $5,000 down payment (25 percent) means you are borrowing $15,000. That $2,000 difference can lower your rate by 2 to 3 percentage points or move you from a decline to an approval.
The down payment also protects you from being underwater on the loan — owing more than the car is worth. Cars depreciate fastest in the first year. If you finance $17,000 on a $20,000 car and the car is worth $16,000 after one year, you owe more than it is worth. If you put down $5,000, you are financing $15,000, and you have equity even after depreciation. This matters if you need to sell or trade the car before the loan is paid off.
Using a co-signer to improve your terms
A co-signer is someone with good credit who agrees to be legally responsible for the loan if you do not pay. Lenders treat the co-signer's credit as if it were yours, which can lower your rate by 3 to 5 percentage points or move you from subprime to prime lending terms entirely.
The cost to the co-signer is real. If you miss a payment, the lender contacts the co-signer. If you default, the lender can sue the co-signer for the full amount owed. The co-signer's credit score can be damaged if you miss payments, even if you eventually catch up. Most people only co-sign for family members, and only when they are confident in the borrower's ability to pay.
If you have a co-signer available, get rate quotes with and without them. The difference will show you exactly how much bad credit is costing you. A rate drop from 16 percent to 10 percent on a $15,000 loan over five years saves you roughly $4,500 in interest. That is substantial enough to make the arrangement worth considering — but only if you are certain you can make every payment on time.
Comparing total loan cost, not just interest rate
The interest rate is not the only number that matters. The loan term — how many months you have to repay — and the down payment also affect what you actually pay. A common mistake is choosing a longer loan term to lower the monthly payment, without realizing the total interest cost rises sharply.
Consider two scenarios for a $15,000 loan with bad credit. Scenario A: 60 months at 14 percent interest. Your monthly payment is $355, and you pay $6,700 in total interest. Scenario B: 84 months at 14 percent interest. Your monthly payment is $280, but you pay $8,520 in total interest. The monthly payment is $75 lower, but you pay $1,820 more in total interest. Over seven years, you are paying for a car that typically lasts five to six years.
The better comparison is total cost. Add the down payment, the monthly payment multiplied by the number of months, and any fees (documentation, registration, dealer fees). That is what you actually pay. A loan with a higher rate but shorter term can cost less than a loan with a lower rate but longer term. Calculate both before deciding.
Steps to improve your chances of approval
Before you explore, check your credit report for errors. You can request a free report from each of the three bureaus at AnnualCreditReport.com. Errors are common — a missed payment that was not actually missed, an account opened in your name fraudulently, a duplicate negative mark. Disputing errors takes time, but it can raise your score by 20 to 50 points, which can lower your rate by 1 to 2 percentage points.
Gather documentation of stable income. Lenders want to see recent pay stubs, tax returns, or bank statements showing regular deposits. If you are self-employed, bring two years of tax returns. If you receive disability or Social Security, bring a benefit statement. Proof of income matters more to subprime lenders than to prime lenders, because they are already taking on credit risk and want to confirm you can actually make the payments.
Get pre-may have access to with multiple lenders before visiting a dealership. Pre-qualification is a soft inquiry that does not damage your credit score. It shows you what rate you might get and from whom. If a dealership knows you have been pre-may have access to elsewhere, they are less likely to push you toward their captive financing. You also avoid the hard inquiries that come with multiple formal applications — each hard inquiry can lower your score by a few points.
What happens after you are approved
Once you are approved, the lender issues a check to the dealership or seller, and you sign the loan documents. The lender holds the title to the car until the loan is paid off. You own the car and can drive it, but the lender has a lien against it — if you default, they can repossess it.
Your first payment is typically due 30 days after you sign. Some lenders allow a grace period of 10 to 15 days past the due date before charging a late fee. After that, late fees typically run $15 to $25 per occurrence, and multiple late payments damage your credit score and can trigger repossession.
If your financial situation changes — you lose income, face an emergency, or realize the payment is too high — contact your lender when ready. Some lenders offer loan modification, deferment, or forbearance programs that let you skip or reduce a payment temporarily. Waiting until you miss a payment makes your options worse.
Frequently Asked Questions
What credit score do I need to get approved for a car loan?
There is no universal minimum. Credit unions may work with scores as low as 550. Subprime lenders typically start at 550 to 600. Banks usually require 650 or higher. Dealership financing often has no stated minimum but charges the highest rates to the lowest scores. Your actual approval depends on income, down payment, and co-signer status as much as your score.
How much should I put down on a car with bad credit?
15 to 25 percent of the vehicle price is typical. A larger down payment lowers your rate and reduces the risk of being underwater on the loan. If you can only put down 5 to 10 percent, you may still be approved, but your rate will be higher or you may need a co-signer. Calculate what you can afford without draining your emergency savings.
Will getting a car loan help rebuild my credit?
Yes, if you make every payment on time. An auto loan is installment credit, which is different from credit card debt and shows lenders you can manage different types of borrowing. On-time payments build your score over time. Missed payments damage it when ready and can trigger repossession, so only borrow if you are confident you can pay.
Can I refinance my car loan later if my credit improves?
Yes. If you make 12 to 24 months of on-time payments, your credit score will likely improve enough to refinance at a lower rate. Refinancing replaces your original loan with a new one, usually with a lower interest rate and a new term. You can refinance with your original lender or a different one. The savings depend on how much your score improved and current market rates.
What if I get denied for a car loan?
Ask the lender why. If it is your credit score, work on improving it before explore again — even a 30-point improvement can change your rate. If it is income, consider a co-signer or a larger down payment. If multiple lenders deny you, you may not be ready to borrow. Waiting six months to a year while building savings and improving your credit will put you in a stronger position.