Getting a car loan with bad credit is possible, but you will pay more and face stricter terms than borrowers with good credit
Lenders view bad credit as a sign you have missed payments or defaulted in the past. They respond by charging higher interest rates, requiring a larger down payment, or both. A borrower with a credit score below 580 might pay 10 to 18 percent interest on a 60-month loan, while someone with a score above 740 might pay 4 to 6 percent on the same loan. That difference adds thousands of dollars to the total cost of the car.
The loan itself works the same way: you borrow money, the lender puts a lien on the car title, and you make monthly payments. The difference is in the price you pay for that money and the conditions attached to it. Some lenders require a co-signer. Others demand a down payment of 15 to 25 percent before they will fund the loan. A few will only approve you for used cars, not new ones.
Your credit score is not the only thing lenders look at. They also check your income, employment history, existing debt, and how much you are asking to borrow relative to the car's value. A stable job and proof of recent income can sometimes offset a low score. A very high loan-to-value ratio — asking to borrow more than the car is worth — will usually disqualify you, regardless of your score.
Key Takeaways
- Bad credit loans carry interest rates 6 to 12 percentage points higher than prime loans, which means you will pay significantly more over the life of the loan.
- Lenders typically require a down payment of 10 to 25 percent when your credit is poor, which reduces the amount you need to borrow.
- Your employment history and current income matter as much as your credit score; a steady job can help offset a low score.
- Subprime lenders, credit unions, and some banks all offer bad credit auto loans, but terms and rates vary widely between them.
- Paying off the loan on time can improve your credit score over time, making future borrowing cheaper.
Where to find lenders who work with bad credit
Traditional banks often decline applicants with credit scores below 620. Credit unions, by contrast, tend to be more flexible because they focus on membership and long-term relationships rather than pure profit. If you belong to a credit union, start there — their rates are usually lower than subprime lenders, and they may consider factors beyond your credit score.
Subprime auto lenders specialize in bad credit loans. Companies like Santander Consumer USA, Westlake Services, and AmeriCredit work with borrowers who have scores in the 500s and 600s. These lenders charge higher rates but move faster than banks and have streamlined approval processes. Many operate online or through dealerships, so you can get a decision in hours rather than days.
Dealerships themselves often have relationships with multiple lenders and can shop your process around. This can be useful if you have bad credit, because the dealership's finance manager knows which lenders will approve you. The downside is that dealership loans often carry higher rates than direct lenders, because the dealership takes a cut. If you go this route, negotiate the price of the car first, then negotiate the loan terms separately.
Online lenders and peer-to-peer platforms exist, but they are less common in auto lending than in personal loans. Most online auto lenders still require a credit score above 600. Your best online option is usually to check your local credit union's website or to use a loan marketplace like LendingTree or Bankrate, which will show you multiple lenders at once.
What lenders will ask for and what it costs
Before you explore, gather your driver's license, proof of income (recent pay stubs or tax returns), proof of residence (utility bill or lease), and your Social Security number. Lenders will pull your credit report, so you will see a small dip in your score for a few days. Multiple hard inquiries within 14 days usually count as one inquiry, so explore to several lenders in a short window if you want to compare offers.
Lenders will ask how much you want to borrow, what car you are buying, and whether you have a down payment ready. They will also ask about your employment — how long you have been at your current job, your gross monthly income, and whether you have other debts. If your employment is recent (less than a year), some lenders will decline you or require a co-signer.
The cost of the loan depends on the interest rate, the loan term, and the amount borrowed. A $15,000 loan at 12 percent interest over 60 months costs about $4,700 in interest alone. The same loan at 6 percent costs about $2,400. That $2,300 difference is why shopping around matters, even when your credit is poor. A one or two percentage point difference in rate can save you hundreds or thousands of dollars.
Some lenders charge origination fees (typically 1 to 5 percent of the loan amount), documentation fees, or dealer prep fees. Read the loan estimate carefully and ask what each fee covers. Some fees are negotiable, especially at dealerships.
Down payments and how they affect your loan
A down payment reduces the amount you borrow, which lowers your monthly payment and the total interest you pay. It also signals to the lender that you are serious about the purchase and have some skin in the game. For bad credit borrowers, a larger down payment can mean the difference between approval and denial.
If your credit score is below 600, expect lenders to require 15 to 25 percent down. If your score is 600 to 650, you might get away with 10 to 15 percent. Some lenders will accept as little as 5 percent if you have a co-signer or a very stable income. A few will approve you with no money down, but they will charge you a higher interest rate to compensate.
Saving for a down payment before you explore is usually worth the wait. A $3,000 down payment on a $15,000 car reduces your loan to $12,000. At 12 percent interest over 60 months, that saves you about $940 in interest compared to borrowing the full $15,000. The monthly payment drops from $333 to $267 — a difference of $66 per month.
Co-signers and when you might need one
A co-signer is someone who agrees to pay the loan if you do not. Lenders ask for a co-signer when they think you are a high risk — usually because your credit is very poor, your income is unstable, or you are asking to borrow a lot relative to the car's value. A co-signer with good credit can lower your interest rate by 2 to 4 percentage points and sometimes means the difference between approval and denial.
The co-signer does not have to be a family member, but it usually is. A spouse, parent, or sibling with a credit score above 650 and stable income is ideal. The co-signer's credit will also be pulled, and the loan will appear on their credit report. If you miss a payment, it damages their credit too. Make sure any co-signer understands this before they agree.
If you can avoid needing a co-signer, do so. It means you have enough income or a large enough down payment that the lender is willing to take the risk on you alone. As your credit improves, you may be able to refinance the loan without a co-signer, which removes them from the obligation.
Loan terms and what to watch for
Auto loans typically run 36 to 84 months. A longer term means a lower monthly payment but more interest paid overall. A 36-month loan at 12 percent on $12,000 costs about $2,000 in interest. A 72-month loan on the same amount costs about $4,700 in interest. The monthly payment drops from $389 to $222, but you pay more than twice as much in interest.
Bad credit borrowers often face pressure to take longer terms to keep the monthly payment affordable. Resist this if you can. A 60-month loan is usually a reasonable middle ground. If the only way you can afford the car is with an 84-month loan, the car is probably too expensive for your situation right now.
Watch for prepayment penalties, which some lenders charge if you pay off the loan early. These are less common in auto lending than in other types of loans, but they do exist. If you think you might come into money and want to pay off the loan ahead of schedule, ask whether there is a penalty. Most lenders will waive prepayment penalties for bad credit borrowers, but you have to ask.
Some lenders include GPS tracking or starter interrupt devices in bad credit auto loans. These allow the lender to track the car's location or disable the engine if you miss a payment. These are legal but controversial. Ask whether the loan includes one before you sign, and understand that removing it may be a breach of contract.
How bad credit auto loans affect your credit score
Taking out an auto loan will lower your credit score by 5 to 10 points in the short term because of the hard inquiry and the new account. Over time, making on-time payments will raise your score. After 12 months of on-time payments, you should see a noticeable improvement. After 24 months, the improvement is usually significant.
This is one of the few ways to rebuild credit when your score is very low. Credit cards are another option, but they carry higher interest rates and are easier to misuse. An auto loan is a structured debt with a fixed end date, which makes it easier to manage. If you can afford the monthly payment and keep the car insured and maintained, an auto loan can be a legitimate tool for rebuilding credit.
Do not miss a payment, even by a few days. A single late payment can erase months of progress and will stay on your credit report for seven years. If you are struggling to make a payment, contact the lender when ready. Many will work with you on a temporary payment reduction or deferment rather than let you fall behind.
Frequently Asked Questions
What credit score do I need to get a car loan?
Most traditional banks require a score of 620 or higher. Subprime lenders will work with scores as low as 500, though rates will be much higher. Credit unions often have more flexible requirements and may consider factors beyond your score, such as employment history and income.
Can I get a car loan with no down payment if my credit is bad?
It is possible but uncommon. Lenders typically require 10 to 25 percent down when your credit is poor. A no-money-down loan is usually only available if you have a co-signer with good credit or if you are willing to pay a significantly higher interest rate.
How much will my interest rate be with bad credit?
Interest rates vary by lender, loan term, down payment, and the exact details of your credit history. Bad credit borrowers typically pay 8 to 18 percent, compared to 4 to 8 percent for borrowers with good credit. Getting quotes from multiple lenders is the only way to know what rate you will actually be offered.
Should I buy a new or used car if my credit is bad?
Used cars are usually easier to finance with bad credit because they are cheaper, which means you borrow less. Some subprime lenders will only finance used cars, not new ones. A used car also depreciates more slowly relative to the loan balance, which protects the lender if you default and they have to repossess and sell the car.
What happens if I miss a payment on a bad credit auto loan?
Missing a payment will damage your credit score and may trigger late fees. If you miss multiple payments, the lender can repossess the car. Contact your lender as soon as you know you will be late — many will work with you on a temporary adjustment rather than let the account go into default.