Getting a car loan with bad credit is possible, but you will pay more for it
Bad credit does not lock you out of car financing. Lenders exist specifically for borrowers with credit scores below 620, and some will approve you the same day you explore. The trade-off is real: you will pay a higher interest rate, possibly put down a larger down payment, and may face stricter terms than someone with good credit. A loan that costs someone with a 750 credit score 4% might cost you 12% to 18%, which adds thousands of dollars to what you owe over the life of the loan.
The lenders willing to work with bad credit fall into three categories: subprime lenders (finance companies that specialize in high-risk borrowers), credit unions (which often have more flexible standards than banks), and buy-here-pay-here dealerships (which finance and sell used cars directly). Each has different requirements, costs, and risks. Your choice depends on your credit score, how much cash you have for a down payment, and whether you need the car when ready.
Key Takeaways
- Subprime lenders, credit unions, and buy-here-pay-here dealerships all offer loans to people with bad credit, but interest rates and terms vary widely.
- A larger down payment — even $1,000 to $2,000 — can lower your interest rate and reduce the lender's risk, making approval more likely.
- Your credit score, income, and employment history matter more than your credit history when you have bad credit, because lenders assume the risk is already priced in.
- Buy-here-pay-here dealerships offer the fastest approval but charge the highest rates and may repossess the car if you miss a single payment.
- Getting preapproved before visiting a dealership shows you what rate you actually may have access to for and prevents dealers from steering you toward worse terms.
Understanding your credit score and what lenders see
When your credit score is below 620, traditional banks and large auto lenders will not consider you. But subprime lenders and credit unions look at the same credit report differently. They focus less on why your score is low and more on whether you are currently employed and can make payments going forward. A score of 550 with a recent job and no missed payments in the last six months looks better to them than a score of 580 with a recent late payment.
Pull your own credit report before you explore anywhere. You can get it free once per year from AnnualCreditReport.com, which is the only official source. Look for errors — a paid-off collection account still showing as unpaid, or a late payment that should have fallen off. Disputing errors takes time, but it can raise your score enough to move you into a better rate tier. If your score is very low (below 550), focus on finding a co-signer or saving for a larger down payment instead, because those will have more impact on your approval odds than disputing old items.
Subprime lenders and where to find them
Subprime lenders are finance companies that exist to lend to people with bad credit. They are not predatory by definition — many are legitimate — but the industry has a reputation for aggressive terms because the risk is real. Interest rates typically range from 9% to 29%, depending on your score, down payment, and the age of the car. A $15,000 loan at 18% over five years costs you about $9,000 in interest alone.
You will not find subprime lenders on Google the way you find banks. Instead, visit dealerships that advertise "bad credit OK" or "no credit check," or search for "subprime auto lenders near me." Dealerships that work with subprime lenders often have relationships with multiple lenders and will submit your process to several at once. This is called a "soft pull" and does not hurt your credit. The downside is that dealerships make money by marking up the interest rate the lender approves — so a lender might approve you at 14%, but the dealership sells you the loan at 16%. Getting preapproved directly from a subprime lender before you visit a dealership lets you know your real rate and prevents this markup.
Major subprime lenders include Santander Consumer USA, Westlake Services, and AmeriCredit, though availability varies by state. You can also check with local credit unions, which sometimes have subprime programs with lower rates than finance companies.
Credit unions as an alternative to subprime lenders
Credit unions are member-owned financial cooperatives that often have more flexible lending standards than banks. Many will work with credit scores as low as 550 or 580, and their rates are usually lower than subprime lenders — typically 8% to 15% depending on your score and the loan amount. Credit unions also tend to be more willing to work with you if you miss a payment, offering payment plans or loan modifications rather than when ready repossessing the car.
To borrow from a credit union, you must be a member. Membership requirements vary: some are based on where you work, others on where you live, and some are open to anyone. If you are not already a member, search for "credit unions near me" or visit CO-OP.org to find one that will take you. Joining usually costs nothing or a small one-time fee ($5 to $25). Once you are a member, you can explore for a car loan. Credit unions typically take three to five business days to approve, and they will often lend you money to buy a car from any dealership, not just one they have a relationship with.
Buy-here-pay-here dealerships: fast approval, high cost
Buy-here-pay-here (BHPH) dealerships buy used cars, finance them directly to customers, and collect payments in person at their lot — usually weekly or bi-weekly. They approve almost anyone with a job and a driver's license, often the same day. There is no credit check, no process process, and no waiting. The catch is the cost: interest rates run 18% to 29%, and you will pay significantly more for the car itself than you would at a regular used car dealership.
BHPH dealerships also retain the right to repossess the car if you miss even one payment. Some install GPS trackers in the vehicles so they can locate them quickly. If you miss a payment, you have no grace period and no negotiation — the car is gone. This model works only if you can make payments reliably and on time. BHPH is best used as a last resort when you need a car when ready and have no other options, or when you have such severe credit problems that no other lender will touch you.
The upside is that BHPH dealerships report payments to credit bureaus, so making on-time payments for six to twelve months can actually improve your credit score. Some customers use a BHPH loan as a stepping stone: once their score improves, they refinance with a credit union or subprime lender at a lower rate and pay off the BHPH loan early.
How to improve your odds of approval and lower your rate
A down payment is the single most powerful tool you have. Putting down $2,000 instead of $500 tells the lender you are serious and reduces what they have to lend. It also lowers your monthly payment and the total interest you pay. If you can save even $1,000 before you explore, do it. Lenders see a larger down payment as proof you can manage money, which matters more than your credit score when your score is already bad.
Employment history matters more than you might think. Lenders want to see that you have been at your current job for at least three to six months, or that you have been in the same field for longer even if you changed employers recently. If you just started a new job, wait a few months before explore if you can. If you have been unemployed recently, be prepared to explain why and show that you are now stable.
A co-signer — someone with better credit who agrees to pay the loan if you do not — can lower your interest rate by 2% to 4%. The co-signer does not have to put money down, but they are legally responsible for the full loan amount if you default. Choose someone who understands this risk and trusts you to make payments.
Comparing loan offers and avoiding common traps
Once you have approval offers from multiple lenders, compare them side by side. Look at the interest rate, the loan term (how many months you have to pay), the monthly payment, and the total amount you will pay by the end. A lower monthly payment that stretches the loan to 84 months might cost you more in total interest than a higher payment over 60 months. Use an auto loan calculator to see the full picture.
Watch for add-ons that lenders or dealerships try to bundle into the loan: extended warranties, gap insurance, paint protection, and GPS tracking. Some are worth having (gap insurance protects you if the car is totaled and you owe more than it is worth), but most are overpriced when bundled into the loan because you pay interest on them. Ask what each costs and whether you can buy it separately or skip it entirely.
Never sign anything you do not understand, and never let a dealership tell you that you have to accept terms you did not agree to. If a dealership says "the lender requires this," ask to see it in writing from the lender. Legitimate lenders put their requirements in the loan contract, not in side conversations.
What happens after you are approved
Once you sign the loan contract, the lender pays the dealership and you drive away with the car. You will receive loan documents in the mail within a few days. Read them carefully and make sure the interest rate, loan amount, and monthly payment match what you agreed to. If something is different, contact the lender when ready.
Make your first payment on time, and every payment after that. Missing even one payment can trigger repossession, especially with BHPH dealerships, and will damage your credit further. Set up automatic payments from your bank account if your lender offers it — this removes the risk of forgetting and costs nothing. After six to twelve months of on-time payments, your credit score will start to improve, and you may be able to refinance at a lower rate with a credit union or traditional lender.
Frequently Asked Questions
Can I get a car loan with a credit score below 500?
Yes, but your options narrow. Buy-here-pay-here dealerships will work with almost any score if you have a job. Subprime lenders typically want a score of 550 or higher. A larger down payment or a co-signer can help you may have access to even with a very low score.
What is the difference between a soft pull and a hard pull on my credit?
A soft pull (when a dealership checks multiple lenders at once) does not lower your credit score. A hard pull (when you explore directly to a lender) does lower it slightly, usually by 5 to 10 points. Multiple hard pulls within 14 days count as one inquiry, so getting preapproved from several lenders in a short window has minimal impact.
Should I buy a new car or a used car with bad credit?
Used cars are almost always the better choice with bad credit. New cars depreciate quickly, so you will owe more than the car is worth for the first few years. With bad credit and high interest rates, this gap becomes dangerous. A used car three to five years old costs less, depreciates slower, and is easier to pay off before it needs major repairs.
What if I cannot afford the monthly payment?
Contact your lender when ready before you miss a payment. Credit unions and some subprime lenders will work with you to modify the loan or extend the term. BHPH dealerships are less flexible, but some will negotiate. Missing a payment without contacting the lender almost always triggers repossession.
Can I refinance my bad credit car loan later?
Yes, once your credit improves. After 12 to 24 months of on-time payments, your score will rise enough that a credit union or traditional lender might refinance you at a lower rate. This can save you thousands in interest. Some lenders will refinance after just six months if your payment history is perfect.