How to Get Car Financing with Bad Credit

How to Get Car Financing with Bad CreditPin

How to Get Car Financing with Bad Credit with Reasonable Terms

If you’re wondering how to get car financing with bad credit, it can be done. Before you take that step though, you need to consider the costs very carefully. Financing terms tend to be expensive if your credit is less than perfect

Because the lender feels they are taking on more risk with your lower credit score, you will be charged a higher interest rate. Unfortunately, that will increase your monthly payment as well. Like any other type of financing though, lenders consider your credit scores to see if you’re likely to repay the loan.

Experian, one of the three major credit reporting bureaus, published a report in the second quarter of 2020, on interest rates charged.  Their report indicates that a subprime borrower (Credit score of 501 to 600), paid an interest rate of 11.33% on a new car loan and for a used car loan, 17.78%.

We’ll list a few steps that you can take when shopping around for a car loan that can help you keep the cost of financing a vehicle lower.

Check your credit

Checking your credit is the first step you need to take before you start to shop for a vehicle loan. Knowing how to get car financing with bad credit will be covered in these steps. Get a free copy of your credit report and check it for any information that is not correct.

If you find any errors, file a dispute with the credit bureau immediately. Some of the errors may appear to be minor, but could jeopardize your ability to qualify for a loan by making your credit score lower.

Doing a review of your credit reports is easy to do. You can get free reports from TransUnion and Equifax on the Credit Karma website. Or, if you prefer, visit the website of, and you can get a free report from each of the three credit bureaus once each year.

Re-build your credit

If you’re not in a hurry to buy a vehicle, it may pay you to take the time to build your credit. By doing so, your higher credit score may qualify you for a lower interest rate, saving you a lot of money. Quite often, taking the time to improve your credit is well worth it in financing costs alone.

If you’re not able to wait and need a vehicle right away, having a family member or maybe a close friend co-sign your loan, is one answer. A co-signer who has good credit, increases the approval odds and could qualify you for a lower interest rate.

Save some money for a larger down payment

There are several benefits available when you know how to get car financing with bad credit. One of them is to see if you can save for a larger down payment. First of all, if you have a low credit score, a larger down payment increases your chance of getting an approved loan. If you have a small down payment, or none at all, the lender is taking on more risk, and you pay for that risk with a higher interest rate.

The higher your down payment means that you’ll have a smaller loan, and subsequently less interest to pay over the life of your loan. Often times, the lender will give you a lower interest rate if you have a large down payment. In addition to your credit score, a lender considers the loan to value ratio. (Your loan amount as compared to the value of your purchase)

See how to get car financing with bad creditPinConsider how much you can afford

Don’t just consider your monthly payment on your car loan to determine how much you are able to borrow. You need to factor in all of the costs of owning a vehicle such as insurance, fuel, maintenance, and even personal property taxes if your state has that tax, into your budget.

Many prospective borrowers are interested only in how to get car financing with bad credit by lowering their monthly payment, and they opt for a six- or seven-year repayment plan. When you do that, you increase the amount of interest you will pay over the life of the loan. Plus, you increase your risk of having an upside-down situation.

What this means is your loan balance is higher than the value of your vehicle. When you have to sell it or trade it in on another purchase, you’ll have to pay the balance off in a lump sum. Depending on how much the remaining balance is, it could offer a challenge for you that you can’t afford.

Shop around at different lenders

When you’re ready to buy, you should shop around at different lenders comparing interest rates and loan terms. This may help you to find the type of loan that is the best one for your budget as well as your needs. If you have bad credit, consider these types of lenders:

  • Your current credit union or bank – This is a good place to begin if you already have a relationship with them.
  • Online lenders – you’ll find many lenders on the internet that are specialists in making loans to individuals with bad credit. They may also pre-qualify you for an estimated loan amount and interest rate.
  • Car dealerships – They often have their own sources with banks and finance companies where you may get approved at a reasonable rate. Some dealerships have their own financing departments to help people with bad credit.
  • Buy here and pay here dealerships – If you’re not able to get a loan approved elsewhere, this may be how to get car financing with bad credit. However, we recommend that this be your last resort. These places that offer no credit checks offer rates and terms much higher than other lenders.

Shop for a loan in the same short period of time

When you shop for an auto loan, or for that matter, any loan, each inquiry at a credit bureau is factored in to determine your credit score. However, if all of these same types of inquiries are made within a 45-day period, the FICO scoring models will count all inquires made by different lenders to be counted as only one inquiry.

If you have a credit score around 500, you may have a hard time getting a car loan. The Experian report mentioned above, showed that people with credit scores of 500 and below, had a very difficult time being approved for a car loan. About 0.37% qualified for a new car loan while 4.35% got approved for a used car loan in the fourth quarter of 2019.


How to get car financing with bad credit is not always easy, but it is available and expensive. If possible, taking steps to improve your credit before shopping for a car loan, can increase your approval odds, and help to keep your financing costs down.

If you’re in a situation where you can’t wait, then pull back a little. Look for a used vehicle that is reliable at a lower price that will still fit your needs. This will require you to borrow less at a lower monthly payment. Remember, with each monthly payment made on time, you’re improving your credit score.

At some point in time, you won’t need to worry about how to get car financing with bad credit if you make all loan payments on time. You’ll improve your credit history and will be on your way to a well-deserved improvement in your credit score.

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