You may have seen the signs outside dealerships advertising “Bad Credit? No Credit? No Problem!”
Getting a car loan is a possibility, even if you have bad credit. While it’s not recommended to go straight to the dealership for financing, securing a loan through a reputable lender actually helps to improve your overall credit score when set up properly and paid on time.
According to a 2014 Federal Reserve study, 40% of people surveyed who wanted access to some form of credit didn’t apply for it because they thought they might not be approved. While being denied a line of credit may be a possibility, low credit doesn’t mean you’ll be turned away from the car-buying process.
As you work to improve your score, check out our list of the best lenders for lower credit borrowers:
Top Pick List of Each Lender
We took a look at a variety of car loan lenders and picked the providers based on interest rates, minimum credit score needed, vehicle purchase stipulations and customer reviews.
Auto Credit Express
In order to lock in a loan with Auto Credit Express, you must be employed full-time or have a guaranteed fixed income of at least $1,500 a month. The good news is that if there’s a bankruptcy on your record, Auto Credit Express can still help you secure a loan. Down payments are typically $500. Auto Credit Express has one of the best reputations in the low credit loan industry, mirrored by excellent customer reviews. The only downside to Auto Credit Express is that like many loan agencies, it will not approve loans that go through private sellers. Buyers will need to go through a dealership to find their vehicles and secure their loan through Auto Credit Express. Auto Credit Express will automatically match you with a local dealer so that you can find the right vehicle for your needs and budget. While the application itself takes less than three minutes to complete, buyers should expect to spend some time on the phone speaking with an agent who will help you find the best deal available.
If you have a minimum monthly income of $1,500 to $1,800 a loan through Capital One may be the right option for you, depending on your credit score. But it doesn’t come without a caveat. The vehicle purchased must be a 2009 or later model and have less than 120,000 miles. Furthermore, if the applicant has an existing Capital One Account, it must be in good standing.
The major downside of securing a bad credit car loan through Capital One is that the issuer’s online pre-approval tool can be misleading. While an applicant may be pre-approved for a certain amount, it doesn’t explicitly translate into a loan approval. You may go through the pre-approval and car searching process and find a vehicle that works for you, only to discover at the very end that you don’t qualify for the loan. This could be a contributing factor for Capital One’s poor customer satisfaction rating, gaining only two out of five stars from 170 reviews in 2019.
LendingClub specializes in personal loans, but offers solutions for people who want to refinance their car loans. People usually refinance an auto loan to get a lower monthly payment, but it does extend the life of the loan.
To qualify for a car loan refinance with LendingClub, an applicant’s vehicle must be no more than 10 years old, under 120,000 miles and be a personal use vehicle. This means that work vehicles, such as with an employer or for a business owner, are not eligible. Furthermore, the applicant’s original car loan must be at least one month old, have at least $5,000–$55,000 balance remaining and at least 24 months of payments remaining.
Interest rates can increase to 35.89% so buyers should certainly read through the terms and conditions for their loan before signing. Potential buyers can expect to have an answer regarding their refinance loan within an hour of filing their application and their loan to be funded within seven days of approval. Applicants who have a cosigner have a better chance of getting approved for this loan as well as a lower interest rate. However, LendingClub averages 3.5 stars in customer satisfaction, making the additional applicant a worthwhile endeavor.
To qualify for this loan, buyer credit scores need to be at least 500, the prospective vehicle must be a 2011 or newer and have less than 140,000 miles. If approved, CarFinance.com will issue a funding certificate that you can use like cash at the dealership. They also offer refinancing options for those with less-than-stellar credit. A big upside to CarFinance.com is that you will have an answer as well as the terms and conditions of your loan back within 30 minutes during business hours. If potential buyers are interested in purchasing a truck, take a look at the ineligible makes and models before applying as only light-duty trucks for personal use are eligible for their loans. There are no fees to apply however, CarFinance.com only has a one-star rating with the Better Business Bureau.
Carvana allows you to get prequalified for a vehicle before you begin your search, which is a major timesaver for prospective buyers. The terms and conditions are valid for 45 days, leaving buyers plenty of time to shop around. Best of all is that it is a soft credit check, meaning it won’t impact your credit score when going through the pre-approval process. There is no minimum credit score to qualify with Carvana, however you cannot have any bankruptcy on your record, and you must make at least $10,000 annually. The down payments depend on the vehicle, your credit score and loan term, however, Carvana has a helpful list of ways to meet your down payment requirement on its website, including the ability to trade in your current vehicle. Buyers cannot use their loan pre-approval for purchasing vehicles outside of Carvana, but if buyers have some financing available through a third-party such as a bank or credit union, that loan can be combined with the financing received through Carvana, making this an adaptable option for many buyers. Carvana has an A+ rating with the Better Business Bureau.
How Do Our Top Picks Stack Up Against One Another?
|APR||Loan Term||Minimum Loan||Maximum Loan|
|Lending Club||3.95% to 35.89%||36 months||$5,000||$55,000|
|CarFinance.com||7.99% to 21.99%||Up to 72 months||$7,500||$50,000|
|Carvana||Based on credit history||36 to 72 months||$7,600||$85,000|
|Auto Credit Express||Varies||Varies||None||$35,000|
What Qualifies as Bad Credit Car Loan?
FICO scores are basically the GPA for your credit rating. Scores can range from 300 to 850, with a higher score being most desirable. Poor credit is typically viewed as 500 or less, although sometimes it is 600 or less, depending on the industry and agency. Many factors contribute to your credit score, including payment history (whether you paid bills and loan payments on time and in full or not), debt-to-income ratio, age of credit accounts and the number of new account inquiries. By having a lower credit score, potential car buyers are seen as a risky investment for traditional banks or loan agencies and therefore non-traditional loans need to be secured. You can find some of these agencies listed in this article. If your need for a car is not immediate, buyers should keep in mind that there are some things that can be done in order to improve credit scores before shopping for a vehicle.
Check Your Personal Loan Rates
Answer a few questions to see which personal loans you pre-qualify for. The process is quick and easy, and it will not impact your credit score.
The Bottom Line
For many, having a personal vehicle that is reliable is an absolute necessity. If you have bad credit, understand that your situation is not hopeless and there are options available to you in order to secure a loan for a vehicle. Like anything else you would sign, be sure to read the terms and conditions thoroughly and make sure that you aren’t signing up for something that you cannot repay. With so many options available now, most buyers will be able to find themselves a reliable vehicle regardless of their credit history.