There are a number of things that can lead to bad credit from unexpected unemployment to poor financial advice. But how do you get the necessary funding to purchase a car when your credit is less than stellar? Believe it or not, there are loans available to you even if you don’t have the best credit and we’ve put together a rundown of our top picks.
Additionally, there are plenty of steps you can take to boost your credit score while you shop for a loan.
Best lenders and loan services of car loans for bad credit:
The Simple Dollar’s Picks for Best Bad Credit Auto Loans
- Auto Credit Express: Best for Special Financing
- MyAutoLoan.com: Best Lead Generator
- Capital One: Best of the Big Banks
Poor credit history isn’t always reflective of your character or work ethic, but it does affect the way a bank or lender sees you. If you have a poor credit rating, it’s nearly impossible to secure a traditional auto loan on your own. That’s why we did the work to find the top options for people who can’t secure a traditional auto loan.
Ideally, you should avoid large purchases that require entering into any kind of loan agreement while working toward fixing your bad credit rating. Your focus should be entirely on paying down any outstanding balances and effectively managing existing credit accounts. However, for many people across the country, public transit isn’t an option, and a personal automobile is their only means of transportation between home and work.
Other professions require personal transportation as a part of their job duties. For them, a car payment can be the difference between making money to pay bills or having no salary at all. In those cases, a bad-credit car loan becomes absolutely necessary, even if the terms of the loan aren’t particularly favorable.
For anyone currently facing that situation, we’ve created this guide to help you understand bad-credit car loans, find the best one for you, and also provide tips on how to manage them as you drive down that long road to credit recovery.
Keep reading to find out why these companies came out on top of my list of bad credit auto loans. I also outline several strategies that will help you keep your costs down and avoid scams once it’s time to make a deal for your new wheels.
Best for Special Financing: Auto Credit Express
If you have bad credit, Auto Credit Express offers a range of knowledge and options that may ultimately translate into a lower APR. Unlike many lenders, the company won’t automatically deny a loan for an older, high-mileage vehicle. You can get help here even if you’ve been through bankruptcy because the company works with traditional dealers as well as special-finance dealers who take on buyers with the lowest credit scores. In most cases, you’ll need monthly gross income of at least $1,500 to $1,800.
Reasons to Sign up
Reasons to Sign up
Reasons to Avoid
Reasons to Avoid
- Great if you want to keep your options open.
- Ideal if you are looking for funding to purchase an older car.
- One of the most reputable, consumer-friendly lenders for bad credit.
- Accredited with Better Business Bureau and has an A+ rating.
- Won’t approve loans for purchase of a car from a private seller.
Best Lead Generator: MyAutoLoan.com
MyAutoLoan.com puts you in touch with up to four lenders in minutes, even if you have bad credit.
One of the site’s most impressive tools is an interest-rate estimator that helps give you an idea of what kind of APR you might get. For instance, for a $15,000 used-car loan with a poor credit score of 580 in Columbus, Ohio, I might expect an average APR of 9.76% or a high of 25%.
The site is clear about terms: You must have at least $1,800 a month in income and no open bankruptcies. It also restricts loans to cars that are eight years old or newer with fewer than 100,000 miles, potentially shutting out some borrowers. It’s up to potential lenders whether a co-signer or down payment will be required. MyAutoLoan has an A+ rating with the Better Business Bureau and many strong customer reviews.
Reasons to Sign up
Reasons to Sign up
Reasons to Avoid
Reasons to Avoid
- Saves time on shopping by putting you in touch with multiple lenders.
- Might be a good choice if you are considering a private seller.
- If you don’t want your information shared with multiple lenders.
- May not fund the purchase of an older or higher-mileage vehicle.
Best of the Big Banks: Capital One
Capital One is one of the primary big-bank lenders for bad-credit car buyers, with more than 12,000 dealers accepting its financing. Among the other pros are competitive interest rates and extensive buyer-education resources. The Auto Navigator tool allows you to get pre-approved and compare car payments on specific vehicles without leaving your house.
Used-car restrictions are relatively liberal: They can be no older than 10 years old and must have fewer than 120,000 miles to be eligible for financing.
Reasons to Sign up
Reasons to Sign up
Reasons to Avoid
Reasons to Avoid
- A secure option for those who don’t want an unknown lender.
- Borrowers in the mid-Atlantic or South can visit a branch to do business face-to-face.
- Will not fund a loan for a private-seller purchase or a lease buyout.
- Won’t be able to fund loan under $4,000 or more than $40,000.
Other Lenders to Consider
- One of the largest lenders for bad credit, but they are getting pickier.
- Approves loans for new cards, used cars, lease buyouts, and private sellers.
- Online account management or visit one of over 6,000 branches.
Along with Capital One, Wells Fargo is one of the largest lenders of car loans for bad credit, though it may be getting pickier — recently, Wells Fargo has begun to scale back its auto lending business.
Wells Fargo approves loans for new cars, used cars, and (unlike Capital One) lease buyouts and private-seller purchases. You can manage your account online or head to one of 6,200 branches nationwide if you prefer to do business in person.
- Site supports customers applying for all major loan types except lease buyouts.
- Extremely informative on the lending process with customer-friendly tools and tips.
- Chat service available for those who want real-time information.
RoadLoans.com is owned by Santander Consumer USA, one of the nation’s leading providers of bad credit auto loans. The site accommodates customers who are applying for all major loan types except lease buyouts.
RoadLoans is a standout when it comes to comprehensive FAQs about the lending process and customer-friendly tools and tips that help take the mystery out of car buying. A chat service is a nice bonus for those who have questions before applying. However, potential customers should be aware that it’s the subject of many poor reviews that complain of restrictive loans and too many credit checks. Santander is also near the very bottom of J.D. Power’s 2017 satisfaction rankings for mass-market auto financing.
Blue Sky Auto Finance
- Even customers who have declared bankruptcy might still be eligible.
- Site is very transparent about loan requirements.
- Accredited by the Better Business Bureau with an A+ rating.
Blue Sky Auto Finance connects bad-credit borrowers with multiple lenders. Customers who’ve declared bankruptcy are still welcome to apply, though the bankruptcy must be discharged.
The site is clearer about requirements than many of its competitors: You’ll need at least a 550 credit score and an income of at least $1,800 a month to receive a loan that isn’t restricted to a certain dealer, but may be eligible for dealer-specific loans if your score is lower. The site includes some good car-buying tips and finance calculators, but it is a bit cluttered and disorganized. Blue Sky is a relatively new company, established in 2004, but it has lodged few complaints and has an A+ with the BBB.
Understanding How Your Bad Credit Affects Your Car Loan
A poor credit score rating is always going to translate to a larger monthly payment on any approved auto loan. Lenders charge a higher interest rate to those with a lower credit score in order to offset their high default rates.
The more money they make upfront from those interest payments will help to minimize their loss in the event that the borrower stops paying and the lender is stuck owing the remainder of the principal loan balance on the automobile. The higher the risk for the bank, the higher the monthly payment for the borrower. This is especially true for bad-credit auto loans.
The following table will give you a better understanding of how a lower credit score translates to higher interest rates (Annual Percentage Rate) and higher monthly car payments:
|FICO Score||APR||Monthly Payment||Total Interest Paid|
*based on a 60-month, $20,000 auto loan at current national average rates
As you can see, your credit rating can drastically alter the APR on any approved auto loan, either increasing or decreasing your monthly cost and lifetime interest payment.
To gain a better understanding of your credit score and how it can affect things like your auto loan’s APR, check out our in-depth Credit Score Guide. In it, you’ll find valuable information on how you can improve your score in order to earn those lower payment rates on future auto loans.
How to Shop for Car Loans When You Have Bad Credit
Buying a car is a chore few people relish. While everyone likes a set of shiny new wheels, bargaining with dealers makes even shoppers with top-notch credit uncomfortable.
If you have bad credit, it’s even more important to be prepared. Here are some shopping tips specifically for buyers who need car loans for bad credit:
Before Going to a Dealership
There are a number of steps you can take to prepare for your auto purchase and subsequent loan application that will ensure the best financial decision and a smooth transaction. Here’s a breakdown of some of those things you should think about and do before ever stepping foot in a car dealership:
Tip #1: Determine your exact vehicle needs.
Because you can expect to pay a much higher APR with a bad-credit auto loan, you don’t want to purchase an automobile that is either larger or includes more amenities than is absolutely necessary for your day to day travel. Both of these things tend to lead to higher costs. And conversely, if you have a large family, or if your job requires you to transport goods or supplies, you need to make sure that you don’t purchase a vehicle that is less than what you need.
Things like gas mileage, total daily commute, and expected routine maintenance should also factor in to your planning. You know your personal transportation needs more than anyone else. Determining the exact nature of them before you head to the dealership will help ensure that you aren’t pressured into a purchase that would only worsen your financial situation.
Tip #2: Set a budget.
Calculate an estimate of those payments and figure out exactly how much you can afford to spend on a vehicle. Check dealer websites, auto buying magazines, newspapers, and any other available resources to get a better idea of the true cost and market value of your desired vehicle. Sticker price may not be the best deal and doing your research might give you some room to negotiate.
It’s also a good idea to examine costs at different term lengths. You’ll notice that the longer the contract, the smaller the monthly payments. However, because of the continued interest payments, you will pay more in the long run.
Many bad-credit car loans are 24- to 36-month terms, as opposed to the more traditional 48-60. Again, this is to reduce the risk for the lender by collecting more upfront in the event of a potential default. Make sure to factor in the potential for a smaller loan term when making your budget.
Also remember that many states mandate auto insurance, as do many lenders, so that’s another amount you’ll need to factor into the monthly costs associated with your auto loan. It’s a good idea to get an insurance price quote as a part of your vehicle budget planning.
Tip #3: Know what’s on your credit report.
You should make it a habit to consistently monitor your own credit report, as it’s very important to know what’s in it long before ever walking into a car dealership or applying for an auto loan. Each of the three major credit bureaus are required by law to provide you with a free copy of your credit report once per year. Go directly to the industry’s AnnualCreditReport.com website. And as with anything on the internet, beware of imitators with similar URLs. Never pay for your free credit report.
If you’ve already obtained your free copy for the year, you can purchase another one from any of the three major bureaus. To avoid any potential scams, it’s best to contact them directly. You can do so at:
You can use the information on this report to better estimate the terms of any bad-credit auto loan you may be approved for, and then plan accordingly.
Buying the Automobile
After you’ve done all your planning and research, you’re ready to put it all to use. Here are some things to keep in mind as you make your purchase:
Tip #4: Don’t move out of your price range.
Any little bit extra tacked on to what you were planning to pay could end up costing a lot in the end as it will grow exponentially along with those interest payments, especially with the higher rates of a bad credit car loan. You went through the work of making your budget. Stick to it.
Tip #5: Don’t be afraid to negotiate.
It can seem like an intimidating proposition to some, but if you did the research, you already should know both what a car is worth and what you’re willing (and able) to pay. If the vehicle you need is out of your price range, do what you can to get it in your range. If it’s already in your range, try to get it lower if your research justifies it.
Any little bit now can save you a lot in the long run. Because of your bad credit score, you most likely won’t be able to negotiate the terms of your auto loan, but you can always try with the purchase price.
Tip #6: Be careful with add-on products and services.
Oftentimes, after you’ve already shaken hands and agreed to a purchase price and loan terms, you will be offered additional products and services before you sign a contract. Most likely, these were not included in the price quoted. If you agree to any of them, the cost will be added onto the previously-agreed cost of the car, which means it raises the amount of your financing.
And because of the higher interest rates associated with that bad-credit auto loan, those products or services could significantly increase the cost of your monthly payments. Know the value of these services and whether they fit into your original budget before agreeing to any of them.
Tip #7: Read the contract. Ask questions.
It’s conventional wisdom that is too often unheeded. Don’t sign anything until you read it. You know your financial situation and your needs better than anyone. And at this point, you should have done your research. If you are unsure of something or have any questions, ask. And if you don’t feel comfortable for any reason, don’t sign. Once you sign the contract on the auto loan, you are legally obligated to it.
After the Purchase
After your bad-credit auto loan has been approved and your car has been purchased, there are plenty of things you’ll want to do and remember.
Tip #8: Keep a copy of your contract.
Just as important as reading the auto loan contract before signing it is keeping a copy after. Make sure to get your copy, with all signatures and details filled in, before leaving the dealership. Don’t trust that they’ll arrive safely to you in the mail. After you do obtain your copy, make sure to keep it in a safe place in the event that you need to refer to it in the future.
Tip #9: Don’t miss a payment.
Chances are that if you’re the recipient of a bad credit car loan, you already understand the negative effects of late or missed payments. Setting up automatic payments is the best way to ensure that you pay your auto loan on time, and paying more than the minimum payment will help to decrease your total interest in the long run.
And if you’re having trouble making the minimum payments, it’s better to try to negotiate an alternative payment with the lender than not pay at all. Contact your lender as soon as you think you might be late with a payment. You’d be surprised how many are willing to work with you in that regard.
Remember, because you’re already a high-risk loan for the creditor, they may be quicker to repossess the vehicle if you miss even a single payment. And in some states, they can repossess without ever having to go to court.
How I Picked the Best Bad Credit Auto Loans
If you have bad credit, it’s not as simple to find an auto loan with a low rate as it is for others. For that reason, I considered many other factors in my recommendations, which I’ll detail farther down.
However, even if your credit isn’t great, make sure you include local banks and credit unions in your search. There is a lot of competition for car loans at every credit level, and you may be able to find competitive rates just a mile or two from your door.
Be sure to check out credit unions in particular. Though the application process may be more involved, they may have more flexible lending criteria than banks. And if you have a long-standing relationship with your own bank, they may have a better idea of your ability to repay a loan than other lenders.
I did not look at manufacturer-specific lenders such as Ford Credit or Honda Financial Services. If your credit is poor, you may not have the luxury of looking for one specific make of car.
The best bad-credit auto loan lenders and servicers provide:
|A wide variety of loans||It’s common for bad-credit lenders to focus on used cars, but the best lenders allow for both new and used loans. Bonus points went to lenders who allow you to get a loan to purchase a car from a private party.|
|Willingness to work with those who’ve been through bankruptcy||Some lenders will not consider you if you’ve declared bankruptcy, a common scenario for borrowers with the worst credit.|
|Educational articles and tools for borrowers||Knowledge is power, especially for borrowers with poor credit. The best lenders make a genuine effort to help borrowers understand the car-buying process and reduce their chances of default.|
|Strong customer support||There should be a number of contact options for borrowers with questions and clear FAQs about the borrowing process.|
|Reasonable and clearly disclosed requirements||If a lender caps loans at certain amounts, won’t allow loans for cars of a certain age or mileage, or requires a certain income or credit score, that information should be easy to find and comparable to limits set by other lenders.|
|Solid reputation||I considered each lender’s longevity, status with the Better Business Bureau, online reviews, and service as measured by J.D. Power’s 2017 Consumer Financing Satisfaction Study, if applicable.|
Terms You Need to Know When Financing Through a Bad-Credit Car Loan
Again, you’ll want to read any contract completely before you sign it. In order to help you understand that legalese, we’ve provided a list of common finance terms that you’ll come across before, during, and after signing for your auto loan.
|Additional Products or Services||Products or services that the dealer may,offer during a sale. These are in addition to the purchase price of the car.,Do not sign for any products or services you don’t want, as these will increase the amount of your loan and payments over time.|
|Amount Financed||The dollar amount loaned to you for the vehicle purchase.|
|Annual Percentage Rate (APR)||The dollar amount loaned to you for the vehicle purchase.|
|Assignee||The lender that buys the contract from the auto dealer.|
|Credit Insurance||Insurance that pays the remaining auto loa balance if you die or become disabled.|
|Credit Report||A report of your previous loan and payment history that the auto loan providers refer to in order to objectively determine if you are a wise investment for them.|
|Credit Score||A number grade (called the FICO score) on your credit report that the three major credit bureaus (Equifax, Experian, and TransUnion) calculate from credit data in the following five categories: payment history, amounts owed, length of credit history, new credit, credit mix.|
|Down Payment||Money paid up front on the vehicle purchase that reduces the amount of the auto loan.|
|Extended Service Contract||Protection in addition to standard warranty that covers the maintenance and repair of certain vehicle systems for an agreed upon term.|
|Finance Charge||A fee charged for the use of credit, such as financial transaction fees in addition to the interest.|
|Fixed Rate Financing||A loan in which the interest rate stays the same for the duration of the contract.|
|GAP Insurance||Guaranteed Auto Protection is additional insurance that pays any difference between the amount an insurance company pays for a stolen or totaled car and the amount you still owe on the auto loan.|
|Monthly Payment Amount||The amount paid each month toward the balance on the auto loan.|
|Negotiated Price of the Vehicle||The amount paid each month toward the balance on the auto loan.|
|Repossession||When the lender retakes possession of the vehicle if the borrower stops paying.|
|Total of Payments||The total amount that will have been paid at the end of the loan, the principal amount plus all of the interest.|
Common Car-Buying Scams
Having bad credit may make you feel like you’re in a vulnerable position when you’re buying a car. Unfortunately, your fears aren’t totally unfounded: Some unscrupulous car dealers try to squeeze more money out of buyers they sense are uninformed, desperate, or both.
The best guard against this is to educate yourself. There are dozens of car-buying scams out there, but here are a few of the most common you should watch out for when you have bad credit.
1. Yo-yo loans
Yo-yo loans are typically a problem for those with shaky credit who don’t (or can’t) get preapproved for a loan before going to the dealer. The dealer lets you take possession of the car even though your financing isn’t final.
You may think you have closed on a loan — until the dealer calls days or weeks later to tell you your financing fell through. Then you’re pressured to take a less-favorable deal in order to keep the car from being repossessed.
Your first line of defense against yo-yo loans is getting pre-approved before you go to the dealer. If you’re relying on dealer financing, demand to see the loan approval documents before you drive away. If they assure you that it’s OK to take possession of the car even if your loan isn’t final, stand firm. Refuse to take the car until you see proof that your financing has been approved.
2. Co-signer ‘straw purchase’ scams
Your dealer may pressure you to get a co-signer, saying you can qualify for a much lower interest rate on your loan and improve your own credit score if your co-signer has a great credit history. That may be true, but you’d first need to decide whether you want to risk your relationship with a co-signer if you can’t pay back the car loan, leaving them on the hook.
Some dealers may take this high-pressure tactic and make it a scam by confusing you and your co-signer during loan paperwork. You’ll walk out of the finance office thinking you co-signed on the loan, but weeks later, you may learn that the loan is only in your co-signer’s name — and yours is nowhere to be found.
To help avoid this scam, make sure you never feel rushed when you’re going over paperwork. Read the documents you’re signing, and in the case of co-signing, make sure you’re signing the same contract — not separate contracts.
3. The ‘as-is’ car that’s actually a lemon
Perhaps you’re checking out used cars — a common scenario if you have bad credit — and you see one with a tantalizingly low sticker price. The federally required buyer’s guide says it is “AS IS – NO WARRANTY,” but the dealer assures you this is routine and there are no problems with the car. You buy the car and it breaks down almost immediately, or you later find out that it was wrecked or flooded when servicing it or running the report you should have seen before buying.
Think twice before buying a used car if you don’t know its history. Checking the car’s title is a good first step, but it won’t always help if the title has been washed — that is, altered to remove evidence that a car has been salvaged. Strongly consider investing in a vehicle-history report from CARFAX or a similar provider to help protect yourself.
4. Refusal of online financing
Perhaps you’ve done your research and gotten pre-approved for financing up to a certain amount for a certain APR through an online lender. In theory, this should smooth the car-buying process — you already have financing.
But the dealer may tell you they’ve had lousy luck with online lenders bouncing checks, and therefore can’t accept the financing. The dealer will, however, be more than happy to offer you their own financing — more than likely at a much higher APR than the one you’ve secured.
If you’re faced with a dealer who won’t accept your pre-approved financing, walk away. The only time you should use the dealer’s loan instead of the one you’ve already gotten is when the terms are better, not worse.
What is a subprime auto loan?
Subprime auto loans are auto loans designed for borrowers with lower credit scores, lower incomes, or shorter credit histories.
Currently, there’s no clear cutoff between prime and subprime borrowers. If your credit score is under 620, you may fall under subprime.
For the most part, subprime auto loans mirror prime auto loans. But subprime loans will often come with double-digit interest rates and higher origination fees. Subprime lenders may also charge high prepayment penalties — costing borrowers more to pay off their loan early.
Subprime auto loans, like most auto loans, are secured loans. A secured car loan is backed using your vehicle as collateral. If you are unable to repay your loan, the lender can repossess your car. This does not mean your loan is settled. You may still have to pay the balance of the loan, even though your car has been repossessed.
If you’re rebuilding your finances, subprime loans may be your only option to finance a vehicle. And subprime auto loans are a much better option than auto title loans.
If you’re considering a subprime auto loan, keep a few things in mind:
Shop around. Interest rates and origination fees will vary by lender. Even though your credit score may be on the lower side, lenders will still compete for your business if you prove your ability to repay.
Pre-owned is usually best. If you’re currently strapped for cash, a used car is probably a more economical choice than a new model (although the new-vs.-used debate rages on). Most importantly, never buy more car than you need regardless of its age or mileage.
Pay more if and when you can. You should at least be meeting your minimum payments. But when you have the opportunity, and if the lender doesn’t have prepayment fees, add a little extra to your payments. Repaying even a subprime auto loan can help rebuild your credit score, setting you up for a stronger financial future.
What is an auto title loan?
Auto title loans (also known as car title loans) are small to large secured loans that borrow against the value of your vehicle. Like payday loans, auto title lenders expect repayment in a week to a month’s time. And they often come with APRs in the triple digits.
According to the Federal Trade Commission, auto title loans start around $100 but can go as high as $10,000. And lenders often charge an average of 25% per month to finance the loan, which equals out to around 300% APR.
Auto title loans don’t require credit checks, which makes them appealing to those with no or bad credit.
But auto title loans are unique because they can only be secured by your vehicle. Failure to repay may result in repossession of your vehicle, or a new auto loan with expensive “rollover fees”.
If you’re still researching ways to finance your car, be aware of auto title loans and avoid them at all costs.
If you’re struggling to repay an auto title loan, you may still have some options:
- Refinancing with monthly payments
- Negotiating with your lender
- Declaring bankruptcy
If you choose to refinance, try to do so with unsecured loans or monthly payments. Unsecured loans may be more difficult to come by with bad credit, but monthly payments may make financing easier. Also, lenders may be more willing to work with you if you approach them as soon as possible.
Declaring bankruptcy is a drastic last step, but in some cases it can help protect your assets.
Can I qualify for a private party auto loan?
Even if you have bad credit, you may still qualify for a private party auto loan.
Private party auto loans provide financing when you buy a car from a private seller. Whether you’re purchasing from a seller you’ve met through a trusted network, or from a family friend, private party auto purchases sometimes need financing.
Purchasing a vehicle through a private party has some benefits, such as not having to worry about dealership fees. Private car purchases often cost less, because you’re paying the seller directly.
However, there are also some risks that come with private party car purchases. Always be sure that you’re purchasing the car from someone you trust. Private parties are not bound to the same laws as professional dealerships.
Be sure to inspect the seller’s car thoroughly, and reference Kelley Blue Book to ensure you’re getting a fair price.
Before you go to a lender, be sure to gather as much information about the car as you can. That includes mileage, accident history, age, and more. You can find many of the essential details in a CARFAX report. If possible, try to have an inspector take a look at the car before approaching a lender.
If you’re confident in your choice, then begin shopping around for the best possible loan. MyAutoLoan.com offers private party loans to borrowers with bad credit, while Capital One and Auto Credit Express do not.
You’ll need to bring your personal information as well as the vehicle and seller’s information. You’ll also need to check with your local DMV to see if there are any additional requirements (these can vary by state).
Starting Your Search for Bad Credit Auto Loans
Remember, even though bad credit will exclude you from prime interest rates, it won’t shut you out of the car-loan game entirely. It’s far easier to get decent auto loans for bad credit than mortgages or other large loans, so you’ll still have a good number of options.
The lenders I profiled above are worth checking out, but remember not to overlook your existing bank and local credit unions. You have nothing to gain and everything to lose by assuming a lender won’t work with you. Our top picks above, Auto Credit Express, Capital One, and MyAutoLoan.com are worth a look for starters.
We also have more help to offer consumers with bad credit. If you need a loan for reasons other than car-buying, check out our guide to the Best Bad Credit Loans. And if you’re looking for a credit card, we offer recommendations in our guide to the Best Credit Cards for Bad Credit.
Finally, if your bad credit is symptomatic of deeper debt problems, you may also want to check out our series on debt management: the Best Debt Management Companies, the Best Debt Settlement Companies, and the Best Debt Consolidation Loans.