How to Buy a Car with Bad Credit

May 16, 2025 • Credit Repair

You need a car, but your credit score isn’t where you want it to be. Now what?

You’re not out of options. Buying a car with bad credit is possible—you just need a strategy that fits your situation. With the right prep, you can avoid common traps and get a loan that makes sense.

This guide walks through what to expect, how to get approved, and what to watch out for so you don’t overpay or end up in a worse financial spot.

How Bad Credit Affects Your Auto Loan Options

A low credit score doesn’t automatically disqualify you from getting a car loan, but it does change the terms you’re likely to get. Lenders treat a bad credit score as a risk factor, so they structure loans differently to protect themselves. That means higher interest rates, tighter requirements, and fewer lender choices.

Here’s how it plays out in real life.

Subprime Loan Basics

Subprime auto loans are designed for borrowers with credit scores below 600. These loans often come with:

Higher interest rates: It’s not uncommon to see rates over 15% depending on your credit score and income.
Shorter loan terms: Lenders may offer 24 to 48 months instead of the more typical 60 to 72.
Stricter loan-to-value requirements: You may not qualify for the full value of the car and might need a bigger down payment.

Subprime lenders take on more risk, so they offset that risk by making loans more expensive for you. That’s why comparison shopping is essential if your credit is in rough shape.

Common Lender Requirements

Even lenders who work with bad credit still have minimum requirements. Here’s what most of them want to see:

Proof of steady income: Pay stubs, bank statements, or even gig income with documentation.
Valid driver’s license: No exceptions here.
Proof of residency: A utility bill or lease agreement usually works.
Down payment: Many subprime lenders require at least $500 to $1,000 down, and more is always better.

The stronger your paperwork, the more confidence a lender will have in approving your loan.

What You’ll Likely Qualify For

If your credit score is under 600, here’s what you can typically expect:

Interest rates in the double digits
Loan offers from smaller banks, credit unions, or specialized online lenders
Vehicle restrictions: You may be limited to used vehicles or models under a certain price point
Higher monthly payments or shorter terms

The key is to come in with realistic expectations. You’re not shopping for luxury—this is about reliable transportation you can afford without putting yourself deeper in debt.

What to Do Before You Start Shopping

Before you look at cars or talk to lenders, it’s important to get your financial picture in order. A little preparation goes a long way—especially when you're working with a lower credit score.

Know Your Credit Score and Reports

Start by checking your credit score and reviewing your credit reports from all three credit bureaus. Look for:

Errors or outdated information: Dispute anything that doesn’t belong.
Negative marks: Late payments, collections, or charge-offs will weigh heavily.
Your current score range: Most lenders break things into categories (prime, near-prime, subprime, deep subprime).

You can get free credit reports at AnnualCreditReport.com. Knowing where you stand helps you spot lenders who are likely to work with you—and avoid the ones who won’t.

Set a Realistic Budget (Total Cost, Not Just Monthly Payment)

Lenders often push low monthly payments, but that can lead to expensive long-term loans. Instead, focus on total cost—including:

Purchase price
Interest over the life of the loan
Taxes, fees, and insurance

Decide what you can afford each month without stretching your budget, and then work backward to find the loan amount that fits. Don’t forget to leave room for maintenance and repairs.

Save for a Down Payment

A down payment reduces how much you need to borrow and shows lenders you're serious. It also:

Lowers your monthly payment
Improves your loan-to-value ratio
May help you qualify with better terms

Aim for at least 10% down, but even a few hundred dollars can make a difference with subprime lenders.

Get Preapproved (And Why It Matters with Bad Credit)

Preapproval gives you a clearer picture of what you can actually afford before setting foot on a lot. It also:

Strengthens your negotiating position
Lets you compare real offers, not dealer estimates
Reduces your chances of being pressured into a high-cost loan

Look for lenders that offer soft credit checks to avoid lowering your score during the preapproval process.

Where to Find Car Loans for Bad Credit

Not every lender works with bad credit borrowers, so it's important to know where to look. Each option has trade-offs, and some are better than others depending on your situation.

Dealership Financing vs. Bank/Credit Union Loans

Many dealerships offer financing through partner lenders, but the terms can vary wildly. You might find:

Higher interest rates at the dealership compared to going directly to a lender
Pressure to focus on monthly payment rather than total cost
Limited lender options, especially if you don’t meet their credit score cutoff

Credit unions often have more flexible lending policies and may be more willing to work with members who have lower credit scores. Banks tend to be more conservative but can be worth a shot if you have an existing relationship.

Online Lenders That Specialize in Bad Credit Auto Loans

Some online lenders focus specifically on helping people with low credit scores get approved. These lenders typically:

Offer quick preapprovals
Have lower score requirements
Accept alternative documentation like gig income or benefit payments

Just be sure to check the lender’s reviews and verify they’re legitimate before applying.

Buy Here, Pay Here Dealerships — Pros and Major Cons

Buy here, pay here dealerships finance the car directly instead of going through a bank. These dealers often don’t even check your credit, but:

Interest rates are extremely high
Cars are often older and sold as-is
Missing a payment can lead to immediate repossession

This should be your last resort—only consider it if you can’t qualify anywhere else and the dealer is upfront about all terms.

How to Improve Your Chances of Approval

If your credit score is holding you back, there are a few ways to strengthen your application and make lenders more comfortable offering you a loan.

Bring a Co-Signer or Co-Borrower

A co-signer with better credit can help you:

Get approved when you otherwise wouldn’t
Qualify for a lower interest rate
Access better loan terms overall

Just make sure the co-signer understands they’re on the hook for the loan if you miss payments.

Trade In Your Current Vehicle

If you already own a car, trading it in can reduce the loan amount you need. It may also:

Serve as part or all of your down payment
Help you qualify for better terms
Lower your monthly payments

Get quotes from multiple sources before accepting a trade-in offer at the dealership.

Choose the Right Car (Modest, Reliable, Affordable)

Focus on getting reliable transportation—not the car of your dreams. Lenders are more likely to approve a loan if:

The vehicle is reasonably priced
It holds its value well
It’s a newer model with low mileage

Look for used cars in good condition that fit your budget. Avoid luxury models, even if they’re older, since they can be expensive to maintain and insure.

Red Flags to Watch Out For

Not every auto loan offer is a good deal—especially when your credit score is low. Some lenders or dealerships take advantage of desperate buyers, so it’s important to spot the warning signs before you sign anything.

Extremely High Interest Rates or Prepayment Penalties

Some lenders offer loans with sky-high interest rates, sometimes 20% or more. That can double or even triple the total cost of the car over time. Watch out for:

Rates that seem much higher than others you've been quoted
Loans that penalize you for paying off early
Hidden fees buried in the fine print

Always ask about the annual percentage rate (APR), not just the monthly payment, and avoid loans with prepayment penalties whenever possible.

Yo-Yo Financing (When the Dealer Changes Your Loan Terms After the Fact)

Yo-yo financing happens when a dealer lets you drive off with a car before final loan approval, then calls later to say the financing “fell through” and you need to agree to new terms.

This tactic is used to pressure you into a worse deal once you’re emotionally committed to the car. Protect yourself by:

Never signing until financing is 100% approved
Reading all paperwork closely
Being ready to walk away if the terms change

Long Loan Terms with Low Monthly Payments

A low monthly payment might sound good, but it often means a longer loan term—and that can cost you more in the long run. Here’s why it’s a red flag:

You pay more interest overall
You risk going upside-down on the loan
It delays the point where you actually own the car

Try to keep your loan term to 60 months or less, even if that means going with a more affordable vehicle.

What to Do If You’re Denied

Even with preparation, getting turned down for a car loan can happen. But it’s not the end of the road. There are still ways to get the car you need or to regroup and come back stronger.

Alternative Options (Lease-to-Own, Cash Cars, Rebuild Credit First)

If traditional financing isn’t available, consider:

Lease-to-own programs: These are similar to rent-to-own, but terms vary widely. Read everything carefully.
Buying a car with cash: It may not be fancy, but a well-maintained used car can still get the job done.
Credit builder loans or secured credit cards: These tools can help improve your credit score in a few months, making it easier to qualify later.

Be cautious of any “no credit check” offers—they often come with extreme interest rates and unfavorable terms.

Consider Waiting and Working on Credit Improvement

If you don’t need a car immediately, waiting a few months can make a big difference. Use that time to:

Pay down existing debt
Dispute errors on your credit reports
Build positive payment history

A small jump in your credit score could open up much better loan options.

Tips to Rebuild Credit After Your Car Purchase

Buying a car with bad credit can be a step forward—if you use the loan to help improve your financial profile.

Make On-Time Payments

Payment history is the most important factor in your credit score. Set reminders or automate your loan payments to avoid late fees and credit damage.

Even one missed payment can undo the progress you’re trying to make.

Consider Refinancing Later

If you’ve made steady payments for 6 to 12 months, you may be eligible to refinance at a lower interest rate. This can:

Reduce your monthly payment
Lower the total cost of the loan
Help you pay off the car faster

Shop around and compare offers from multiple lenders before refinancing.

Monitor Your Credit Reports

Keep an eye on your credit reports to track your progress and catch any errors that may result in negative marks. Make sure your auto loan is being reported correctly, and watch your credit score gradually improve.

You can get a free credit report from each credit bureau every 12 months at AnnualCreditReport.com—or more frequently if you're denied credit.

Final Thoughts

You can buy a car with bad credit, but it takes planning and caution. Lenders will want to see proof that you’re reliable, and you’ll need to avoid the common traps that can make a bad situation worse.

The more you prepare, the better your chances of getting approved—and staying in a loan that won’t drain your finances.

Explore your options, check your credit, and don’t rush into a deal that doesn’t make sense. A little patience now can save you a lot of money later.