If you have bad credit, then know that you’re not alone. In 2015, the Corporation for Enterprise Development estimated that 56% of consumers have subprime credit scores (below 640). There are many reasons why you may have blemishes on your credit history, but don’t let your low score discourage you from financing a new or used vehicle. Auto loans for bad credit are out there.
Because lenders rely on your credit report to decide if you qualify for their loans, bad credit largely excludes you from traditional auto financing, and it’s not often possible to delay buying a car until you can improve your credit. Even if you originally qualified for a car loan, it can be difficult to refinance an auto loan with bad credit. Lenders consider you a high-risk borrower, resulting in loan terms that are less than favorable.
Nevertheless, you do have options. We’ve culled a list of lenders and loan servicers for bad credit, along with tips and instructions to help you through the financing process.
Our Top Picks
At first, shopping around for a bad credit auto loan can seem daunting. Some companies only offer poor credit borrowers interest rates as high as 25% or similarly outrageous terms. Our list of top picks is comprised of lenders willing to help people with bad credit obtain reasonable car loans.
Auto Credit Express
Auto Credit Express offers the largest network of bad credit car dealerships in the country. These dealerships specialize in helping people with poor credit find and finance a car. Auto Credit Express takes more than just your FICO score into account when selecting loan options for you. Here are the minimum requirements for qualifying with Auto Credit Express.
- At least $1,500 monthly gross income ($1,800 recommended)
- 18 years or older
- Current or legal resident of the U.S. or Canada
- Full-time employment or guaranteed fixed income
Auto Credit Express works with dealers that report to credit agencies, which means that your payments show up on your credit report and can look good in the long run. Need additional peace of mind? Auto Credit Express has a Better Business Bureau accreditation with an A+ rating.
My Auto Loan
Both the borrower and the car must meet certain requirements to obtain approval for a bad credit car loan from My Auto Loan, but these minimum requirements are less stringent than for a traditional auto loan.
Minimum requirements for a borrower:
- 18 years or older
- Income of at least $1,800 per month or $21,600 per year
- No open bankruptcies
- Live in one of the contiguous 48 states (My Auto Loan is not available in Alaska or Hawaii)
Minimum vehicle requirements:
- Less than 100,000 miles
- Eight years old or newer
- Price of $8,000 or more
My Auto Loan is a Better Business Bureau trusted website with an A+ rating. Unlike many other lenders, My Auto Loan issues loans for private party purchases, meaning that you don’t have to work with a dealership when searching for a car.
Top Pick for Financing
People with poor credit know that they’re unlikely to qualify for a traditional car loan with a bank or credit union, but sometimes even bad credit lenders disqualify those at the lowest end of the FICO scale. One company stands out when it comes to financing.
Auto Credit Express
Auto Credit Express has connections with a vast network of dealerships that are willing to work with buyers who have poor credit. Due to the sheer number of lenders they have on call, this company is likely to find a deal to suit you at a better interest rate than other companies in a smaller pool. Auto Credit Express also doesn’t have a waiting period for those who have experienced bankruptcy, making it possible for them to apply for a loan sooner.
Auto Credit Express offers special financing through subprime dealerships that are accustomed to working with buyers who have the lowest credit scores. Many of these dealerships don’t even check your credit report during the application process. Those that do put more emphasis on steady employment and permanent residence rather than credit score.
When other bad credit lenders disqualify applicants, Auto Credit Express has helped more than 1.7 million people with low credit scores obtain vehicles. That’s why it earns the top pick for financing options.
Top Pick for Banks
Working with an unfamiliar, online-only finance company makes some people uneasy. Although many major financial institutions turn down those with bad credit scores, some are willing to work with you. Big banks can offer more competitive interest rates and often work with a larger network of car dealers than smaller outfits.
Capital One’s online Auto Navigator allows you to approach the big bank without ever walking through the door. Use the online tool to see if you qualify for a loan. When multiple agencies check your credit report, it can hurt your score, which is the last thing you want to do. Capital One offers pre-qualification that doesn’t impact your credit.
This online tool also allows you to estimate APR and monthly payments based on the price of the vehicle and the length of the loan. Capital One won’t automatically count you out if your credit is less than ideal.
Top Pick for Options
Poor credit does limit your financing options, but you should still be able to compare various products and services to find what best suits your needs. Although there are several lenders that work with low credit scores, you might discover that they have limited options. My Auto Loan is a different story.
My Auto Loan
This company uses a patented evaluation process to match you with relevant offers that meet your needs. Online tools make it easy for you to compare rates from different lenders to find the one that matches your budget. Additionally, My Auto Loan approves loans for private party sellers and lease buyouts to expand your options when it comes to finding a car.
They aren’t our top picks, but there are a few lenders that deserve recognition. Wells Fargo and RoadLoans both work with people who have bad credit to help them secure financing for a car loan. If it doesn’t work out with other companies, then consider these alternative options.
Wells Fargo is one of the largest banks in the country and also one of the largest lenders for auto financing for people with low credit scores. Although the company capped the subprime loans it would finance in 2015, a Wells Fargo spokesman stated, “We are firmly committed to responsibly offering access to credit to a wide spectrum of customers during all economic cycles.”
Wells Fargo auto loan options include new and used vehicle purchases from dealers, private sellers and lease buyouts. The bank also offers auto refinancing and auto equity loans. Wells Fargo recommends securing a co-applicant to improve your chances for approval. The co-applicant enters the loan with you and maintains part ownership of the vehicle.
RoadLoans is a leader in bad credit auto financing and has been for over 12 years. Even if you have a bankruptcy in your credit history, RoadLoans can help you find a car and the financing to purchase it. Use the online application to secure financing for new or used vehicles from dealers or private sellers nationwide. Consider refinancing with RoadLoans to see if you qualify for a lower interest rate.
RoadLoans reviews are generally positive. The company earned a five-star rating with Trustpilot with a 9 out of 10 satisfaction rating from customers, who gave especially high ratings for the quick and easy application process, friendly customer service and options for people with poor credit.
What Does Bad Credit Mean for Your Car Loan?
A poor credit rating means that lenders see you as a higher risk for not repaying the loan. This high risk comes at a cost, usually in the form of a higher interest rate and a higher monthly payment. If you have good credit, then you have your pick of lenders, but low credit limits your options because fewer lenders want to take a chance on you.
The table below illustrates how your credit score impacts your interest rate and monthly payment. Additionally, you can see how much more interest you pay over the life of the loan.
|Credit Score||APR||Monthly Payment||Total Interest|
You can see how a low credit score costs more over time. Someone with a credit score below 589 pays nearly $7,000 more that someone with a score of 720 for the same vehicle.
These sample rates are not indicative of your potential rates. Use an auto loan calculator to get a better idea of what kind of interest rate you can secure and how much your monthly payment will be. These calculators take into account your credit score, the price of the vehicle, the down payment, the length of the loan and your geographic location.
Shop Around For the Best Auto Loan Interest Rate by Credit Score
Part of getting a car loan for bad credit is shopping strategically for the right lender. The interest rate you’re approved for effectively determines how expensive the car is really going to end up being in the long run so you should be on the hunt for the best deal possible.
Here’s an example to illustrate just how important your score is. Let’s say you have a credit score of 685 and you want to borrow $20,000 to buy a car. Based on your score, the lender approves you for a rate of 4.5 percent. If you take out a five-year loan, you’ll pay close to $2,400 in interest.
Now, let’s assume you have a score of 665 instead. That 20-point difference is enough to make the lender bump up your interest rate to 7.5 percent. Assuming the same loan amount and repayment term, you’d now be shelling out roughly $4,100 in interest for a difference of approximately $1,700.
When your score is hovering around the 620 mark, it’s not uncommon for the interest rate to hit double digits. Financing a $20,000 loan over five years with a 15 percent interest rate would cost you a cool $8,500 in interest. That’s a good reason to be working on adding as many points to your score as possible prior to taking out a loan.
How to Start Looking for a Car Loan with Bad Credit
Now that you know that bad credit auto loans are available, you can start shopping around for one that fits your budget. Preparation and knowledge can save you money. If you have bad credit, then these steps can start you on the path to an agreeable car loan.
Step 1: Check Your Credit Score
Before doing anything else, check your credit score. You might be surprised to discover that it’s better than anticipated. Either way, you know what you’re working with. Each of the three credit bureaus — Equifax Credit Information Services, Experian and TransUnion Corporation — offer one credit report each year. The report does not show your score, but you can see which accounts are visible on your report and how they impact your credit history. Use Credit Sesame’s credit score tool to view your numerical score.
Step 2: Set a Budget
Use auto loan calculators to help you determine how much you can reasonably afford to spend on a car. Select a calculator that takes your credit score into account for more accurate interest rates. Play with the numbers by changing term lengths to estimate monthly payments for as few as 24 months and as many as 72 months. Keep in mind that while a longer loan term lowers your monthly payment, it increases the total amount you pay with interest. A short loan term increases monthly payments but reduces how much you spend total. You should also note that some lenders only offer short loan terms to reduce their risk.
Don’t forget to factor in your down payment, too. Many states require full insurance coverage on a financed vehicle, so be sure to include those costs in your total budget.
Step 3: Search for Financing
Secure financing for a vehicle before you head to the dealership. After you figure out your budget, you know exactly which rates and payments you can afford. This saves you the hassle of trying to compare rates at the dealership. Also, when you arrive on the lot with a pre-qualification, you can focus all of your negotiations on the purchase price of the vehicle rather than getting sidetracked in the financing office.
Avoid applying for several loans. You can hurt your score when multiple agencies check your credit report over a short period of time, so do your research and select only the lenders that look like the best fit before applying for a bad credit auto loan.
Step 4: Consider Your Vehicle Needs
You may know the vehicle you want, but have you considered what you actually need? If you have a long commute, then fuel efficiency should be a priority. If you have a big family or haul large loads on a regular basis, then high-capacity seating or cargo space should top your list.
Be realistic and honest. Are heated seats and television screens really necessary? Luxury features are nice, but they drive up the price of the car. Knowing which features you absolutely need before heading to the dealership prevents you from falling for an expensive car that you can’t truly afford.
Step 5: Read Your Loan Agreement
If you follow these steps in order, then by this point you should be familiar with the terms of your loan. That loan is not final until you choose a car, agree to pay for it and sign on the dotted line. Be sure to read the entire loan agreement to ensure that all terms are correct. Ask for clarification if you are unsure of the wording. When everything looks good, add your signature and retain a copy for your records.
Step 6: Keep Up With Monthly Car Payments
Now that you have your car, it’s vital to make the monthly payments on time. Because you’re a high-risk borrower, lenders might be less lenient about late or missed payments than with a traditional auto loan. Missed payments can result in repossession, leaving you back where you started. Additionally, on-time payments look good to the lender. By proving your creditworthiness, you might be eligible to refinance at a lower interest rate after time.
What is a Good Credit Score to Buy a Car and How Does Your Score Compare?
As we mentioned earlier, lenders usually have different ideas about what qualifies as a“good” credit score needed for car loan. In general, anything between 740 and 850 would be high enough to qualify you for the lowest interest rates with the fewest amount of hiccups during the application process.
A score ranging from 680 to 739 would fall in the “fair” or “average” category. Getting approved still shouldn’t be difficult but you’ll pay a little more in interest for the loan. It may also be tougher to take advantage of special dealer promotions, like zero down deals or deferred interest periods.
Use These Yips to Obtain at Least the Average Credit Score for Car Loan
Now that you know how your score stacks up, the next step is working on growing it as much as possible before you head to the bank. The first and most important thing you can do with that goal in mind is to make sure you’re paying your bills on time.
Did you know: Your payment history carries the most weight with both your FICO and VantageScores.
Paying late can cause your score to drop by as much as 100 points so it’s vital that you make your payments by the due date every month.
Next, you should be chipping away at any debts you owe, starting with your credit cards. Credit card debt has the biggest impact on your credit utilization ratio, which is a measure of how much of your total credit line you’re using. The higher the ratio, the more it hurts your score. Aiming to get your utilization below the 30 percent mark can result in an improvement in your score.
Finally, you should be putting the kibosh on applications for new credit or loans in advance of applying for a car loan. Every time you apply for credit an inquiry shows up on your credit report. Each one shaves a few points off your score so you should steer clear of trying to get new credit unless it’s absolutely necessary.
Consider a co-signer
If you’ve done everything you can to bring your score up but you’re still out of range for the best rates, asking someone to co-sign can cut down on some of the expense of borrowing. When you’re recruiting a co-signer, make sure you choose someone who has an excellent credit history since that affects the rate. Just keep in mind that if you use a co-signer, you need to be extra vigilant about paying on time. If you miss a payment and it’s reported to the credit bureau, that black mark could show up on their credit report as well as yours.
The bottom line? You can still get a car loan with bad credit; you’re just going to have to work a little bit harder to make it work for you.
Shopping for an auto loan with bad credit is different than comparing rates for a traditional loan. You may have to work with companies you’ve not heard of before. There are a couple of big names on the list, but smaller lenders are more common when it comes to bad credit auto loans. Here is the criteria we followed when selecting the lenders mentioned in this list.
|Criteria||What We Looked For|
|Products and services||Are a variety of services available for borrowers with bad credit? What types of cars qualify?|
|Extremely low credit scores and bankruptcy||Are borrowers disqualified if they have a credit score below a certain number or have a bankruptcy in their credit history?|
|Requirements||How easy is it to apply for a loan? Are the requirements for approval reasonable and clear?|
|Customer service||What type of education and support is available? Is it easy to get in touch with customer service?|
|Customer satisfaction||What do past and current customers have to say about the company? Has the BBB or other agency rated the company?|
|Company history||How long has the company been in business or provided services to bad credit borrowers?|
Use this criteria to identify other reputable lenders not mentioned in this list if you plan to research alternative financing options.
Terms You Should Know Before Getting Your First Auto Loan
Before signing on the dotted line, you’ve got to examine the auto loan contract, which may contain some confusing terminology. A simple vocabulary lesson can help bring clarity to the stipulations of your auto loan.
Additional Products or Services – Add-ons that the dealer may offer when you’re purchasing a vehicle. These are optional and come at an additional cost, so don’t agree to any that you don’t want or that push past the boundaries of your budget.
Amount Financed – The dollar amount that you borrow from the lender for the purchase of your vehicle. This is often the principal minus finance charges or down payment.
Annual Percentage Rate (APR) – The annual rate charged to you for your auto loan. The rate expressed as a single number makes it easier to compare loans from different lenders.
Assignee – The company or person who purchases your auto loan from the dealer.
Credit Insurance – An insurance policy that pays the balance on your auto loan in the event that the lender cannot collect what is owed, usually because of death or permanent disability.
Credit Report – A summary of your financial history. Lenders use the report to determine your creditworthiness based on previous loan and payment history.
Credit Score – A number that reflects your creditworthiness based on an evaluation of your financial history, including your payment history, length of credit accounts, amounts owed and other factors. It’s also known as your FICO score.
Down Payment – The dollar amount that you pay upfront and apply toward the purchase of your vehicle. This reduces the amount you need to borrow.
Extended Service Contract – A warranty offered in addition to the standard warranty on a vehicle. It covers maintenance and repairs that aren’t part of the manufacturer’s warranty or extends the coverage period. It’s also known as an extended warranty.
Finance Charge – Any fee you must pay for borrowing money. Finance charges include financial transaction fees and interest.
Fixed Rate Financing – A loan in which the interest rate stays the same and does not fluctuate for the entire length of the loan.
GAP Insurance – Guaranteed Asset Protection is an additional type of insurance for your vehicle. If your car is stolen or totaled, the insurance company pays the market value of your car, which may be less than the amount you owe. GAP insurance covers this difference.
Monthly Payment Amount – The amount you pay each month toward your auto loan. This amount includes the interest and the principal.
Negotiated Price of the Vehicle – The price of the vehicle after the buyer and seller negotiate and mutually arrive at an agreeable number.
Repossession – When the lender takes possession of the car in the event that you fail to make the agreed-upon payments.
Total of Payments – The total amount that you pay by the end of your loan. This includes principal and interest.
Having a poor credit rating does not bar you from financing a car. A bad credit auto loan does come with higher interest rates and monthly payments, but obtaining a new or used vehicle is within the realm of possibility. By working with one of the top loan companies, you can find a lender that meets your needs and helps you purchase a car within your budget. You can save even more by learning how to get cheap car insurance in 2016 by evaluating the top car insurance companies out there.
We know that a low credit score impacts more than just auto financing, but it’s completely possible to get a general bad credit loan in 2016 if you find yourself in need of big cash. When your problem is too many loans, then it’s smart to know the top debt consolidation loans available to you. Remember, no matter the type of loan, bad credit does not automatically rule you out.