How to borrow for a car when your credit history is damaged
You can get a car loan with bad credit, but you will pay more for it. Lenders who work with lower credit scores charge higher interest rates because they see you as riskier. A loan that costs someone with excellent credit 4% might cost you 10% to 18% or higher, depending on your score, income, and the lender. The loan term may also be shorter — often 36 to 60 months instead of 72 months — which means a bigger monthly payment even though you are paying more interest overall.
The real question is not whether you can borrow, but whether the monthly payment fits your budget and whether you need the car badly enough to accept the cost. Before you explore anywhere, know your credit score, have a realistic monthly budget in mind, and understand that every process triggers a hard inquiry that temporarily lowers your score a few more points.
Key Takeaways
- Interest rates for bad-credit car loans typically range from 10% to 18%, sometimes higher, depending on your score and the lender.
- Subprime lenders, credit unions, and some traditional banks all offer bad-credit loans, but they have different requirements and costs.
- A co-signer with better credit can lower your rate, but they are legally responsible for the full loan if you stop paying.
- A larger down payment reduces the amount you borrow and can lower your rate slightly, but it does not eliminate the bad-credit premium.
- Getting pre-approved before visiting a dealership tells you what rate you actually may have access to for and prevents dealers from shopping your process to multiple lenders.
Where to get a bad-credit car loan
Subprime lenders specialize in bad-credit loans and are often the fastest route. Companies like Santander Consumer USA, Westlake Services, and AmeriCredit focus on borrowers with credit scores below 620. They have streamlined online applications and can give you a decision in hours. The trade-off is that their rates are the highest in the market — often 15% to 18% or more — and they may require a larger down payment.
Credit unions often have lower rates than subprime lenders, even for bad credit. If you belong to one, ask whether they offer auto loans and what their rates are for your credit range. Credit unions are member-owned, so they sometimes prioritize lending to members over maximizing profit. You do not need to be a member to join most credit unions; you may be able to open membership through your employer, a community organization, or your geographic location.
Traditional banks like Wells Fargo, Chase, and Bank of America do offer bad-credit auto loans, but their approval odds are lower and their rates are often comparable to subprime lenders. They may require a minimum credit score of 580 to 620. Call your own bank first to ask what they offer; existing customers sometimes get slightly better terms.
Online lenders like LendingClub and Upstart have entered the auto loan market and may consider factors beyond your credit score, such as income and employment history. Their rates vary widely, and some specialize in lower scores. Get pre-approved quotes from several to compare.
What happens during the process process
When you explore for a bad-credit car loan, the lender will ask for proof of income (recent pay stubs or tax returns), proof of residence (utility bill or lease), a valid ID, and your Social Security number. They will pull your credit report and run a background check. This is a hard inquiry, which temporarily lowers your score by a few points. Multiple hard inquiries in a short time (within 14 to 45 days, depending on the scoring model) usually count as one inquiry, so it is safe to shop around quickly.
The lender will also verify your employment and may contact your employer directly. If you are self-employed, expect to provide more documentation — usually two years of tax returns and possibly a profit-and-loss statement.
Once approved, the lender will tell you the interest rate, the loan term, and the monthly payment. You can then choose a vehicle within the approved loan amount. Some lenders require you to buy from a dealership; others allow private sales. If you buy from a private seller, the lender will inspect the car and may require a pre-purchase inspection from a mechanic.
Using a co-signer to lower your rate
A co-signer is someone with better credit who signs the loan alongside you and agrees to pay if you do not. Having a co-signer can lower your interest rate by 2% to 5 percentage points, which saves thousands over the life of the loan. Common co-signers are parents, spouses, or close relatives.
Before asking someone to co-sign, understand what you are asking them to do. If you miss a payment, the lender will pursue the co-signer for the full amount. The loan also appears on their credit report, which can affect their ability to borrow for their own needs. A co-signer should only agree if they are willing and able to make your payments if you cannot.
Some lenders allow you to remove a co-signer after you have made a certain number of on-time payments — usually 12 to 24 months — but you must request this formally and the lender must approve it.
How a down payment affects your loan
A larger down payment reduces the amount you need to borrow, which lowers your monthly payment and the total interest you pay. It can also improve your approval odds and may lower your interest rate slightly. However, a down payment does not erase the bad-credit premium — you will still pay more than someone with good credit, even with 20% down.
If you have $3,000 saved and are buying a $12,000 car, putting down $3,000 means you borrow $9,000 instead of $12,000. On a 60-month loan at 15%, that saves you roughly $1,500 in interest. But if you put down only $1,000, you borrow $11,000, and the interest cost rises to about $4,500.
Do not drain your emergency savings for a down payment. If your car breaks down after you buy it, you need money to repair it or you will miss work and fall behind on the loan payment. A down payment of 10% to 20% is reasonable; anything more puts you at financial risk.
Getting pre-approved before you visit a dealership
Pre-approval means a lender has reviewed your information and told you the rate and terms you may have access to for, before you pick a car. Getting pre-approved from a bank, credit union, or online lender before you go to a dealership protects you in two ways: you know your actual rate, and you are not dependent on the dealer's financing.
Dealerships often have relationships with multiple lenders and will shop your process to several of them to find the best rate they can offer. This sounds helpful, but it can backfire. Dealers sometimes mark up the rate they receive from the lender — charging you 12% when the lender approved you at 10% — and pocketing the difference. If you arrive with pre-approval, you can compare the dealer's offer to your pre-approved rate and walk away if the dealer is charging more.
Pre-approval also gives you negotiating power. You can tell the dealer you have financing lined up and are only interested in their offer if it beats your pre-approved rate. This often prompts them to work harder to match or beat it.
Red flags and predatory lending practices
Some lenders targeting people with bad credit use predatory practices. Watch for these warning signs: lenders who may provide approval without checking your credit, lenders who pressure you to sign documents you have not read, lenders who ask for payment upfront before funding the loan, and lenders who encourage you to roll negative equity from a previous loan into a new one.
Negative equity means you owe more on a car than it is worth. If you owe $8,000 on a car worth $6,000 and trade it in, you are $2,000 underwater. Some lenders will add that $2,000 to your new loan, so you start out owing more than the car is worth. This is a trap — you will be underwater on the new loan too, and if the car breaks down, you will owe more than you can recover by selling it.
If a lender seems too eager or makes promises that sound too good, research them first. Check the Better Business Bureau, read reviews on Google and Trustpilot, and ask whether they are licensed in your state. State financial regulators maintain lists of licensed lenders; your state's attorney general website usually has a link.
What to expect after you sign the loan
Once you sign, the lender funds the money and you own the car. The lender holds the title until you pay off the loan. Your monthly payment is due on the same day each month, and late payments trigger fees and damage your credit further. Set up automatic payments if possible — it is one less thing to remember, and many lenders offer a small rate discount (usually 0.25%) for autopay.
Bad-credit loans often come with stricter terms than prime loans. Some lenders require full-coverage insurance (not just liability), and they may require you to maintain a certain level of coverage. Some also include a GPS tracker or starter interrupt device, which allows the lender to disable the car if you miss a payment. Ask about these requirements before you sign.
If your financial situation improves and your credit score rises, you may be able to refinance the loan after 6 to 12 months. Refinancing means taking out a new loan to pay off the old one, ideally at a lower rate. This is not automatic — you have to explore for a new loan — but it can save you thousands if your score has improved enough.
Frequently Asked Questions
What credit score do I need to get a car loan?
Most subprime lenders work with scores as low as 500 to 550, though rates are highest at the bottom of that range. Credit unions and traditional banks usually require 580 to 620. Your exact rate depends on your score, income, down payment, and the lender's own criteria. Checking your score before you explore helps you target lenders who actually work in your range.
Can I get a car loan if I have no credit history?
Yes, but it is harder than having bad credit. Lenders have no history to evaluate, so they rely more heavily on income, employment, and whether you have a co-signer. Subprime lenders and credit unions are more likely to work with you than traditional banks. A co-signer with established credit significantly improves your odds.
How much will my monthly payment be?
That depends on the loan amount, interest rate, and term. A $10,000 loan at 15% over 60 months costs about $237 per month. The same loan at 18% costs about $244 per month. Use an online auto loan calculator to estimate your payment based on different rates and terms. Remember that your actual rate depends on your credit score and the lender you choose.
What if I get denied?
If one lender denies you, others may approve you. Subprime lenders have looser standards than traditional banks. You can also try adding a co-signer, saving for a larger down payment, or waiting a few months while you pay down other debts and improve your credit score. Each on-time payment raises your score slightly, and older negative marks have less impact over time.
Should I buy a new car or a used car with bad credit?
Used cars are usually the better choice. New cars depreciate quickly, so you risk being underwater on the loan when ready. With bad credit, you are already paying a high interest rate; buying a depreciating asset makes the situation worse. A reliable used car three to five years old is a safer choice. Have any used car inspected by a mechanic before you buy.