Best Bad Credit Car Loans for 2020

Compare the best bad credit auto loan rates and apply online using the comparison tool below.

Auto Loan Express

Auto Loan Express
Min. Loan Fixed APR Term
N/A N/A 24 - 72 months
LEARN MORE

on lender's secure website

Auto Loan Express

Auto Loan Express
Min. Loan Fixed APR Term
N/A N/A 24 - 72 months
LEARN MORE

on lender's secure website

CarsDirect

CarsDirect
Min. Loan Fixed APR Term
N/A 3.00% - 12.90% 24 - 72 months
LEARN MORE

on lender's secure website

CarsDirect

CarsDirect
Min. Loan Fixed APR Term
N/A 3.00% - 12.90% 24 - 72 months
LEARN MORE

on lender's secure website

MyAutoLoan

MyAutoLoan
Min. Loan Fixed APR Term
$7,500 3.49% - 18.03% 24 to 72 months
LEARN MORE

on lender's secure website

MyAutoLoan

MyAutoLoan
Min. Loan Fixed APR Term
$7,500 1.79% - 21.03% 24 to 72 months
LEARN MORE

on lender's secure website

MyAutoLoan

MyAutoLoan
Min. Loan Fixed APR Term
$7,500 3.74% - 18% 24 to 72 months
LEARN MORE

on lender's secure website

Penfed

Penfed
Min. Loan Fixed APR Term
$500 2.14% - 6.29% 1 - 7 years
LEARN MORE

on lender's secure website

 

Having a bad credit score can make an auto loan seem out of reach. While your credit score is one of the primary factors lenders consider, a bad credit score shouldn’t discourage you from applying. You can still find an auto loan that you can afford, though buying a car with bad credit means you’ll pay higher APRs and face tighter restrictions. We’ve assessed the best lenders for low-credit borrowers with our proprietary SimpleScore methodology by evaluating each lender’s rates, terms, customer satisfaction, customer support and fees.

In this article

The 5 best bad credit auto loans for 2020

Bad credit auto loans at a glance

Lender New Car APR Terms Minimum Loan Maximum Loan
Auto Credit Express Varies Match current loans or extend it by 12 months None $55,000
LendingClub 3.99%-24.99% Match current loan or extend it by 12 months $5,000 $55,000
Capital One 2.99%-24.99% 24 – 84 months $4,000 $50,000
Carvana 3.90%-27.90% 72 months N/A N/A
MyAutoLoan 3.49%-21.08% 24/72 months $8,000 N/A

COVID-19 Update: We're keeping track of how the coronavirus pandemic is affecting auto loans. Read More.

Best bad credit auto loans

Best for no money down – Auto Credit Express

Auto Credit Express

Auto Credit matches borrowers with local dealers who will help you find what you need — even with a bad credit score.

New Car APR
Varies
Loan Amount
$55K
Terms
Match current loan term or extend it by 12 months
SimpleScore
N/A / 5.0
close
SimpleScore
Auto Credit Express
N/A
  • Rates
  • Loan Size
  • Customer Satisfaction
  • Support
  • Fees
Working with all credit levels, Auto Credit Express is perfect for those who are having a hard time qualifying. Auto Credit Express doesn’t offer loans directly. Instead, it will connect you with its network of approved lenders. With one of the best reputations for borrowers with poor credit, Auto Credit Express’s quality is echoed by excellent customer reviews. Even if there’s a bankruptcy on your record, Auto Credit Express can help you secure a loan. 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.

Like many online comparison sites, Auto Credit Express will not approve loans that go through private sellers, you must use a lender within their network. It will automatically match you with a local dealer so that you can find the right vehicle for your needs and budget.

Full review

Our Two Cents — Like a switchboard operator, Auto Credit Express isn’t where you’ll get your loan, but they’ll connect you to who you need.

Best for auto refinancing – LendingClub

LendingClub

Offering prequalification within minutes, LendingClub is a good option for borrowers with poor credit who want to refinance their current car loan for a better rate or longer term.

New Car APR
3.99% to 24.99% (excluding auto pay discount)
Loan Amount
$55K
Terms
Match current loan term or extend it by 12 months
SimpleScore
4.4 / 5.0
close
SimpleScore
LendingClub
4.4
  • Rates
    5
  • Loan Size
    5
  • Customer Satisfaction
    4
  • Support
    5
  • Fees
    5
Focusing on refinanced auto loans, LendingClub helps borrowers lower their monthly payments or adjust their interest rate. But you should look elsewhere if you’re shopping for a new car, LendingClub does not offer traditional auto loans. To pursue a refinanced loan with LendingClub, your vehicle must be less than 10 years old with fewer than 120,000 miles. Additionally, your current loan must have a balance of between $5,000 and $55,000 and at least 24 months left in its term. This means that work vehicles, such as with an employer or for a business owner, are not eligible.

While it does offer some of the lowest car loan rates for those with good credit, interest rates can increase to as high as 35.89% if you have poor credit. Applicants with poor credit who have a cosigner might have a better chance of getting approved for this loan as well as a lower interest rate. With an easy online application, you can get your refinancing offer within minutes. In fact, you may have the funds in your bank within seven days of approval. But, LendingClub is only available in 35 states.

Full review

Our Two Cents — With no origination fees, LendingClub is the Millenium Falcon of auto refinance loans. You’ll have your offer fast, just maybe not in less than twelve parsecs.

Best dealership network – Capital One

Capital One

Capital One auto loans are a good option if you want a well-known lender, though their ambiguous pre-approval tool and restrictions on dealerships can complicate the process.

New Car APR
2.99% to 24.99% (excluding auto pay discount)
Loan Amount
$50K
Terms
24 to 84 months for auto purchase
SimpleScore
4.4 / 5.0
close
SimpleScore
Capital One
4.4
  • Rates
    5
  • Loan Size
    5
  • Customer Satisfaction
    4
  • Support
    5
  • Fees
    5
Capital One allows borrowers to secure auto loans and refinance existing ones. With tools like auto loan calculators and a network of over 12,000 eligible dealers, this lender has a lot to offer. To qualify, borrowers must have a minimum monthly income of $1,500 to $1,800, and the vehicle purchased must be a 2009 or later model with less than 120,000 miles. Capital One will pre-qualify you without a hard credit check, but you’re limited to using the loan at only their partnered dealerships.

While the online pre-approval tool is easy to use, it can be misleading. Preapproval doesn’t explicitly translate into a loan approval. You can go through the pre-approval and car searching process, find a vehicle that works for you, only to discover that you don’t qualify for the loan. Frustrations like these may have contributed to Capital One’s poor customer satisfaction rating, gaining only two out of five stars from 170 reviews in 2019.

Full review

Our Two Cents — If you’ve seen Donnie Darko, then you already know what it’s like to get an auto loan from Capital One –– misleading and sometimes frustrating.

Best customer satisfaction – Carvana

Carvana

There is no minimum credit score to qualify for a loan from Carvana, making it a great option for those with poor credit.

New Car APR
3.90% - 27.90% (excluding auto pay discount)
Loan Amount
Varies by state
Terms
72 months
SimpleScore
4 / 5.0
close
SimpleScore
Carvana
4
  • Rates
    5
  • Loan Size
    5
  • Customer Satisfaction
    4
  • Support
    5
  • Fees
    5
Carvana is an online retailer, meaning you can shop for cars right from the comfort of your home. Prequalification happens before you begin your search, which is a major timesaver for prospective buyers. The terms and conditions are valid for 45 days, leaving you with plenty of time to shop around and make the best choice. The down payment required will depend on the car, your credit score and loan term.

Another upside is that there is no minimum credit score to qualify with Carvana, however you can’t have bankruptcies on your record and you must make at least $10,000 annually. Another catch is that loan pre-approvals can not be used for purchasing vehicles outside of Carvana’s network. But if you 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.

Full review

Our Two Cents — Completely online, you can shop for a car from the comfort of your home. It’s like ordering take out, but with a way longer payment process.

Best for multiple loan offers – MyAutoLoan

MyAutoloan

If you expect variety, MyAutoloan delivers by offering numerous lenders and matching borrowers to a promising range of auto loans.

New Car APR
3.49% - 21.08% (excluding auto pay discount)
Loan Amount
N/A
Terms
72 months
SimpleScore
5 / 5.0
close
SimpleScore
MyAutoloan
5
  • Rates
    5
  • Loan Size
    5
  • Customer Satisfaction
    4
  • Support
    5
  • Fees
    5
Full review

Our Two Cents — If you’re certain that you need as many loan offers as you can get and don’t mind a hard credit pull, repeat after Yoda, “Do, or do not.” There is no try with MyAutoloan.

What is a bad credit auto loan?

Offered by online lenders, banks or credit unions, auto loans allow you to finance your car. Once you take out the loan, you repay your lender through monthly payments plus interest and any additional fees. A bad credit loan is the same as a traditional auto loan but tailored to your credit score. FICO scores are basically the GPA for your credit rating. Many factors contribute to your credit score, including payment history (whether you pay bills and loan payments on time and in full), debt-to-income ratio, age of credit accounts and the number of new account inquiries. A low credit score makes you a risky investment for traditional banks or loan agencies, though you still have options in non-traditional loans.

There are three factors that influence your loan and how much you’ll end up paying over time.

  1. Total loan amount – How much you need to borrow.
  2. Loan terms – Set by the lender, your loan term specified how long you’re set to repay your loan and how much your monthly payments will be.
  3. APR – Annual percentage rate is an evaluation of the affordability of the loan. It includes both the interest rate of the loan and any additional fees you pay.

If you don’t need a car immediately, keep in mind that there are things that you can do to improve your credit score before shopping for a vehicle. For buyers with a lower credit score, bad credit loans are available for non-vehicle financing.

How bad credit auto loans work

The first thing you should know is: auto loans are secured loans. This means if you fail to make your payments on time, you’ll lose your car. Applying for a loan with lenders means you’ll have to prove your ability to repay the loan and give the lender access to your credit history and other financial information. Don’t let the process surprise you. Gather all of your important financial information pay stubs, existing loan and asset information to make sure you’re prepared.

Regardless of whether you go through a bank, credit union or an online lender, once you’re approved you’ll receive a lump sum for your car purchase. Then, you pay back your loan to the lender, with interest, over the term of your loan.

How much you’ll pay each month will be determined by the loan amount, loan term and APR. Once you know your monthly payments, make a budget to make sure you’ll never fall behind. Making your payments on time will improve your bad credit and open up the possibility of refinancing. Refinancing an auto loan allows you to qualify for a lower interest rate and adjust your monthly payments.

Pros and cons of an auto loan with bad credit

A bad credit score will undeniably limit your options for the best auto loans. But that doesn’t mean you can’t buy a car with bad credit. A car loan can have a positive impact on your credit score if managed correctly. However, if you fail to make your monthly payments, it can damage your credit even further. Before you take out an auto loan, think about the pros and cons, so you know what you’re signing on for.

Pros Cons
No extra collateral Risk of losing a car due to missed payments
Car ownership over lease term Skipped or missed payments affect credit scores
On-time payments help increase credit scores Bad credit car loans mean higher APRs and tighter restrictions
Option to refinance with good credit score Vehicle will depreciate over the term of the loan

When to use an auto loan for bad credit

If you can afford it, an auto loan is a good way to buy a car even if your credit score is lacking. Undeniably, a bad credit auto loan will mean higher interest rates and fewer choices. Though if you have compared your options and planned your repayment, an auto loan can be beneficial.

Bad credit auto rates don’t have to be permanent. If you make your payments on time (or make extra payments if you can afford it), your credit score will increase and you can potentially refinance your loan. Refinancing a loan will allow you to find a lower interest rate and save money in the long run.

When to avoid an auto loan for bad credit

You should avoid even the best auto loan for bad credit if you cannot afford to pay it back. Signing on for a loan you cannot reasonably afford will damage your credit if you fall behind on your payments. Don’t be swayed by the “great” deals that require zero down and a seemingly reasonable monthly payment.

By the end of your term, you’ll probably have paid more than the car was worth because of a high interest rate. Don’t focus only on the monthly payment when shopping around; consider all the terms, fees and interest charges.

Especially if your credit is lacking, you might want to jump at any car loan that comes your way. But it’s essential that you examine the terms of the loan, making sure to avoid any predatory auto loan practices like yo-yo sales, auto loan markups and loan packing.

How is auto loan interest calculated?

Interest is one of the main ways lenders earn a profit. The best bad credit auto loan rates vary and change daily. So getting prequalified before looking for a car will give you a better idea of what you should expect for interest. Auto loans are amortized and paid back with simple interest, which means you pay back the money borrowed plus a flat percentage rate.

Let’s say you borrow $35,000 for a term of 36 months at an interest rate of 11%. In this scenario, your estimated monthly payment will be $1,146, and over the term of the loan (36 months), you’ll pay $6,251 in interest.

If you take out the same $35,000 loan for 36 months at an interest rate of only 5.5%, your monthly payments will be $1,057, and you’ll only pay $3,047 in interest.

How to choose the best auto loan for bad credit

Step 1: Improve your credit score (if you can)

Before you start looking for an auto loan, the first step is getting a hold of your credit report and checking it for errors. Blunders on your credit score can negatively impact your credit score and can take up to 30 days to dispute, so being proactive is essential. Once you have a clear picture of where you stand on the credit spectrum, work towards improving it.

  • Ask for a credit limit increase You may want to ask for a credit limit increase on an existing account a few months before shopping for a car. This improves your debt-to-credit ratio and, in many cases, will impact your credit score — at least temporarily.
  • Make current loan payments on time Your track record for payments is one of the most critical elements that make up your credit score. It’s also one of the best ways to boost it.
  • Reduce debt Focusing your efforts on reducing debt as much as possible will improve your credit utilization ratio and simplify your finances. Not only will reducing debt make new payments more manageable but will increase your score. Find ways to cut your spending and use that excess to make additional payments toward your existing balance.

Step 2: Create a budget

You have to know what you can reasonably afford. Entering into a loan that you can’t repay is a financial misstep you may not recover from. Take a look at all of your spending and decide what you can eliminate and what you can’t live without. Don’t overestimate how much you can commit to saving each month; be realistic about your financial situation. Creating a budget eradicates the unknowing of how much of a loan you should take out.

Step 3: Shop around

A bad credit score can make getting a car loan tricky, but that doesn’t mean you have to settle for whatever rate comes your way. You don’t need to limit yourself to one lender. Rates will vary across granters, so take the time to do some research and compare options. Getting prequalified will get you rates from lenders, but they are subject to vary since they are only based on a soft credit pull.

Step 4: Review and finalize loan

You don’t have to jump at the first offer that comes your way, and you should always compare options. Look at the loan term as a whole, not just the monthly payment. A lower monthly payment will mean more interest over time. If you’re not careful, you could end up paying more than your car is worth. You’re always looking for the most favorable terms, though remember to be realistic about how much you can afford to repay each month. When your loan is finalized, immediately plan how you’re going to repay it.

Bad credit auto loans FAQ

Will credit checks count against my credit rating?

Too many checks in a short period of time are not ideal. Try to get a preapproved bad credit auto loan before visiting a car dealership. They often run your credit through several vendors to get approval, and this will only weaken your credit, making auto loan financing difficult.

Should I use a cosigner if I have bad credit?

Yes. Lenders may be more willing to approve an application if you have a qualified cosigner. You’re also more likely to receive a lower interest rate or a larger loan with the help of a cosigner.

How can I fix my credit?

One of the best ways to build your credit is to make debt payments on time. In addition to paying off high-interest balances, try not to take on any extra debt if you’re attempting to improve your score.

Can I get a loan if I’m unemployed?

It depends on the lender. Most often, lenders will look at employment history when approving you for a loan. However, the biggest consideration is your credit score. If you have a long employment history and good credit, you may qualify for a personal loan. But, it may have to be secured by collateral so your lender knows it will be paid back. Visit Emergency Loans for the Unemployed to learn more.

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.

Too long, didn’t read?

The good news is that if you have bad credit, your situation is not hopeless and there are options available to you to secure an auto loan. Even though the best bad credit car loan rates will be higher than traditional options, it’s crucial that you read all the terms so you aren’t signing up for something you can’t repay. With so many options available, most buyers will be able to find themselves a reliable vehicle — regardless of their credit history.

Keep reading

Methodology

The SimpleScore is our proprietary scoring metric to compare products and services at The Simple Dollar in a transparent, evidence-based way. Our editorial team identifies five quantifiable aspects to compare for every brand, determines the rating criteria for each aspect score, then averages the five aspect scores to produce a single SimpleScore. For bad credit auto loans, we compared interest rates, terms, amount, transparency and fees for every major lender. Our ratings are meant to be a directional tool to help you in the process of choosing an auto loan provider. Be sure to continue your research and shop around for the best auto loan that fits your specific needs.

We welcome your feedback on this article and would love to hear about your experience with the personal loans we recommend. Contact us at inquiries@thesimpledollar.com with comments or questions.

COVID mask

The impact of Covid-19 on bad credit auto loans.

Protecting your credit score is essential to your financial success. But in the wake of the economic uncertainties surrounding the Covid-19, it's more important than ever. In April, major credit bureaus, Equifax, Experian and Transunion made a joint decision to offer free weekly credit reports for the next year to help people manage their credit during the pandemic. Likewise, credit counseling agencies are also offering help to people affected by Covid-19. The National Foundation for Credit Counseling (NFCC), for example, is allowing people to receive free credit guidance from a nonprofit credit counselor.

More resources

Taylor Leamey
Taylor Leamey
Personal Finance Reporter

Taylor Leamey is a personal finance reporter at The Simple Dollar who covers banking, savings, mortgages, loans and credit cards. Her writing has also been featured at Reviews.com, Interest.com and ISP.com.

Reviewed by

  • Andrea Perez
    Andrea Perez
    Personal Finance Editor

    Andrea Perez is an editor at The Simple Dollar specializing in personal finance. Prior to that she specialized in digital marketing content for online learning websites. She holds a master’s degree in journalism and media studies from the University of South Florida.

Best Bad Credit Car Loans for 2020

Compare the best bad credit auto loan rates and apply online using the comparison tool below.

Auto Loan Express

Auto Loan Express
Min. Loan Fixed APR Term
N/A N/A 24 - 72 months
LEARN MORE

on lender's secure website

Auto Loan Express

Auto Loan Express
Min. Loan Fixed APR Term
N/A N/A 24 - 72 months
LEARN MORE

on lender's secure website

CarsDirect

CarsDirect
Min. Loan Fixed APR Term
N/A 3.00% - 12.90% 24 - 72 months
LEARN MORE

on lender's secure website

CarsDirect

CarsDirect
Min. Loan Fixed APR Term
N/A 3.00% - 12.90% 24 - 72 months
LEARN MORE

on lender's secure website

MyAutoLoan

MyAutoLoan
Min. Loan Fixed APR Term
$7,500 3.49% - 18.03% 24 to 72 months
LEARN MORE

on lender's secure website

MyAutoLoan

MyAutoLoan
Min. Loan Fixed APR Term
$7,500 1.79% - 21.03% 24 to 72 months
LEARN MORE

on lender's secure website

MyAutoLoan

MyAutoLoan
Min. Loan Fixed APR Term
$7,500 3.74% - 18% 24 to 72 months
LEARN MORE

on lender's secure website

Penfed

Penfed
Min. Loan Fixed APR Term
$500 2.14% - 6.29% 1 - 7 years
LEARN MORE

on lender's secure website

 

Having a bad credit score can make an auto loan seem out of reach. While your credit score is one of the primary factors lenders consider, a bad credit score shouldn’t discourage you from applying. You can still find an auto loan that you can afford, though buying a car with bad credit means you’ll pay higher APRs and face tighter restrictions. We’ve assessed the best lenders for low-credit borrowers with our proprietary SimpleScore methodology by evaluating each lender’s rates, terms, customer satisfaction, customer support and fees.

In this article

The 5 best bad credit auto loans for 2020

Bad credit auto loans at a glance

Lender New Car APR Terms Minimum Loan Maximum Loan
Auto Credit Express Varies Match current loans or extend it by 12 months None $55,000
LendingClub 3.99%-24.99% Match current loan or extend it by 12 months $5,000 $55,000
Capital One 2.99%-24.99% 24 – 84 months $4,000 $50,000
Carvana 3.90%-27.90% 72 months N/A N/A
MyAutoLoan 3.49%-21.08% 24/72 months $8,000 N/A

COVID-19 Update: We're keeping track of how the coronavirus pandemic is affecting auto loans. Read More.

Best bad credit auto loans

Best for no money down – Auto Credit Express

Auto Credit Express

Auto Credit matches borrowers with local dealers who will help you find what you need — even with a bad credit score.

New Car APR
Varies
Loan Amount
$55K
Terms
Match current loan term or extend it by 12 months
SimpleScore
N/A / 5.0
close
SimpleScore
Auto Credit Express
N/A
  • Rates
  • Loan Size
  • Customer Satisfaction
  • Support
  • Fees
Working with all credit levels, Auto Credit Express is perfect for those who are having a hard time qualifying. Auto Credit Express doesn’t offer loans directly. Instead, it will connect you with its network of approved lenders. With one of the best reputations for borrowers with poor credit, Auto Credit Express’s quality is echoed by excellent customer reviews. Even if there’s a bankruptcy on your record, Auto Credit Express can help you secure a loan. 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.

Like many online comparison sites, Auto Credit Express will not approve loans that go through private sellers, you must use a lender within their network. It will automatically match you with a local dealer so that you can find the right vehicle for your needs and budget.

Full review

Our Two Cents — Like a switchboard operator, Auto Credit Express isn’t where you’ll get your loan, but they’ll connect you to who you need.

Best for auto refinancing – LendingClub

LendingClub

Offering prequalification within minutes, LendingClub is a good option for borrowers with poor credit who want to refinance their current car loan for a better rate or longer term.

New Car APR
3.99% to 24.99% (excluding auto pay discount)
Loan Amount
$55K
Terms
Match current loan term or extend it by 12 months
SimpleScore
4.4 / 5.0
close
SimpleScore
LendingClub
4.4
  • Rates
    5
  • Loan Size
    5
  • Customer Satisfaction
    4
  • Support
    5
  • Fees
    5
Focusing on refinanced auto loans, LendingClub helps borrowers lower their monthly payments or adjust their interest rate. But you should look elsewhere if you’re shopping for a new car, LendingClub does not offer traditional auto loans. To pursue a refinanced loan with LendingClub, your vehicle must be less than 10 years old with fewer than 120,000 miles. Additionally, your current loan must have a balance of between $5,000 and $55,000 and at least 24 months left in its term. This means that work vehicles, such as with an employer or for a business owner, are not eligible.

While it does offer some of the lowest car loan rates for those with good credit, interest rates can increase to as high as 35.89% if you have poor credit. Applicants with poor credit who have a cosigner might have a better chance of getting approved for this loan as well as a lower interest rate. With an easy online application, you can get your refinancing offer within minutes. In fact, you may have the funds in your bank within seven days of approval. But, LendingClub is only available in 35 states.

Full review

Our Two Cents — With no origination fees, LendingClub is the Millenium Falcon of auto refinance loans. You’ll have your offer fast, just maybe not in less than twelve parsecs.

Best dealership network – Capital One

Capital One

Capital One auto loans are a good option if you want a well-known lender, though their ambiguous pre-approval tool and restrictions on dealerships can complicate the process.

New Car APR
2.99% to 24.99% (excluding auto pay discount)
Loan Amount
$50K
Terms
24 to 84 months for auto purchase
SimpleScore
4.4 / 5.0
close
SimpleScore
Capital One
4.4
  • Rates
    5
  • Loan Size
    5
  • Customer Satisfaction
    4
  • Support
    5
  • Fees
    5
Capital One allows borrowers to secure auto loans and refinance existing ones. With tools like auto loan calculators and a network of over 12,000 eligible dealers, this lender has a lot to offer. To qualify, borrowers must have a minimum monthly income of $1,500 to $1,800, and the vehicle purchased must be a 2009 or later model with less than 120,000 miles. Capital One will pre-qualify you without a hard credit check, but you’re limited to using the loan at only their partnered dealerships.

While the online pre-approval tool is easy to use, it can be misleading. Preapproval doesn’t explicitly translate into a loan approval. You can go through the pre-approval and car searching process, find a vehicle that works for you, only to discover that you don’t qualify for the loan. Frustrations like these may have contributed to Capital One’s poor customer satisfaction rating, gaining only two out of five stars from 170 reviews in 2019.

Full review

Our Two Cents — If you’ve seen Donnie Darko, then you already know what it’s like to get an auto loan from Capital One –– misleading and sometimes frustrating.

Best customer satisfaction – Carvana

Carvana

There is no minimum credit score to qualify for a loan from Carvana, making it a great option for those with poor credit.

New Car APR
3.90% - 27.90% (excluding auto pay discount)
Loan Amount
Varies by state
Terms
72 months
SimpleScore
4 / 5.0
close
SimpleScore
Carvana
4
  • Rates
    5
  • Loan Size
    5
  • Customer Satisfaction
    4
  • Support
    5
  • Fees
    5
Carvana is an online retailer, meaning you can shop for cars right from the comfort of your home. Prequalification happens before you begin your search, which is a major timesaver for prospective buyers. The terms and conditions are valid for 45 days, leaving you with plenty of time to shop around and make the best choice. The down payment required will depend on the car, your credit score and loan term.

Another upside is that there is no minimum credit score to qualify with Carvana, however you can’t have bankruptcies on your record and you must make at least $10,000 annually. Another catch is that loan pre-approvals can not be used for purchasing vehicles outside of Carvana’s network. But if you 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.

Full review

Our Two Cents — Completely online, you can shop for a car from the comfort of your home. It’s like ordering take out, but with a way longer payment process.

Best for multiple loan offers – MyAutoLoan

MyAutoloan

If you expect variety, MyAutoloan delivers by offering numerous lenders and matching borrowers to a promising range of auto loans.

New Car APR
3.49% - 21.08% (excluding auto pay discount)
Loan Amount
N/A
Terms
72 months
SimpleScore
5 / 5.0
close
SimpleScore
MyAutoloan
5
  • Rates
    5
  • Loan Size
    5
  • Customer Satisfaction
    4
  • Support
    5
  • Fees
    5
Full review

Our Two Cents — If you’re certain that you need as many loan offers as you can get and don’t mind a hard credit pull, repeat after Yoda, “Do, or do not.” There is no try with MyAutoloan.

What is a bad credit auto loan?

Offered by online lenders, banks or credit unions, auto loans allow you to finance your car. Once you take out the loan, you repay your lender through monthly payments plus interest and any additional fees. A bad credit loan is the same as a traditional auto loan but tailored to your credit score. FICO scores are basically the GPA for your credit rating. Many factors contribute to your credit score, including payment history (whether you pay bills and loan payments on time and in full), debt-to-income ratio, age of credit accounts and the number of new account inquiries. A low credit score makes you a risky investment for traditional banks or loan agencies, though you still have options in non-traditional loans.

There are three factors that influence your loan and how much you’ll end up paying over time.

  1. Total loan amount – How much you need to borrow.
  2. Loan terms – Set by the lender, your loan term specified how long you’re set to repay your loan and how much your monthly payments will be.
  3. APR – Annual percentage rate is an evaluation of the affordability of the loan. It includes both the interest rate of the loan and any additional fees you pay.

If you don’t need a car immediately, keep in mind that there are things that you can do to improve your credit score before shopping for a vehicle. For buyers with a lower credit score, bad credit loans are available for non-vehicle financing.

How bad credit auto loans work

The first thing you should know is: auto loans are secured loans. This means if you fail to make your payments on time, you’ll lose your car. Applying for a loan with lenders means you’ll have to prove your ability to repay the loan and give the lender access to your credit history and other financial information. Don’t let the process surprise you. Gather all of your important financial information pay stubs, existing loan and asset information to make sure you’re prepared.

Regardless of whether you go through a bank, credit union or an online lender, once you’re approved you’ll receive a lump sum for your car purchase. Then, you pay back your loan to the lender, with interest, over the term of your loan.

How much you’ll pay each month will be determined by the loan amount, loan term and APR. Once you know your monthly payments, make a budget to make sure you’ll never fall behind. Making your payments on time will improve your bad credit and open up the possibility of refinancing. Refinancing an auto loan allows you to qualify for a lower interest rate and adjust your monthly payments.

Pros and cons of an auto loan with bad credit

A bad credit score will undeniably limit your options for the best auto loans. But that doesn’t mean you can’t buy a car with bad credit. A car loan can have a positive impact on your credit score if managed correctly. However, if you fail to make your monthly payments, it can damage your credit even further. Before you take out an auto loan, think about the pros and cons, so you know what you’re signing on for.

Pros Cons
No extra collateral Risk of losing a car due to missed payments
Car ownership over lease term Skipped or missed payments affect credit scores
On-time payments help increase credit scores Bad credit car loans mean higher APRs and tighter restrictions
Option to refinance with good credit score Vehicle will depreciate over the term of the loan

When to use an auto loan for bad credit

If you can afford it, an auto loan is a good way to buy a car even if your credit score is lacking. Undeniably, a bad credit auto loan will mean higher interest rates and fewer choices. Though if you have compared your options and planned your repayment, an auto loan can be beneficial.

Bad credit auto rates don’t have to be permanent. If you make your payments on time (or make extra payments if you can afford it), your credit score will increase and you can potentially refinance your loan. Refinancing a loan will allow you to find a lower interest rate and save money in the long run.

When to avoid an auto loan for bad credit

You should avoid even the best auto loan for bad credit if you cannot afford to pay it back. Signing on for a loan you cannot reasonably afford will damage your credit if you fall behind on your payments. Don’t be swayed by the “great” deals that require zero down and a seemingly reasonable monthly payment.

By the end of your term, you’ll probably have paid more than the car was worth because of a high interest rate. Don’t focus only on the monthly payment when shopping around; consider all the terms, fees and interest charges.

Especially if your credit is lacking, you might want to jump at any car loan that comes your way. But it’s essential that you examine the terms of the loan, making sure to avoid any predatory auto loan practices like yo-yo sales, auto loan markups and loan packing.

How is auto loan interest calculated?

Interest is one of the main ways lenders earn a profit. The best bad credit auto loan rates vary and change daily. So getting prequalified before looking for a car will give you a better idea of what you should expect for interest. Auto loans are amortized and paid back with simple interest, which means you pay back the money borrowed plus a flat percentage rate.

Let’s say you borrow $35,000 for a term of 36 months at an interest rate of 11%. In this scenario, your estimated monthly payment will be $1,146, and over the term of the loan (36 months), you’ll pay $6,251 in interest.

If you take out the same $35,000 loan for 36 months at an interest rate of only 5.5%, your monthly payments will be $1,057, and you’ll only pay $3,047 in interest.

How to choose the best auto loan for bad credit

Step 1: Improve your credit score (if you can)

Before you start looking for an auto loan, the first step is getting a hold of your credit report and checking it for errors. Blunders on your credit score can negatively impact your credit score and can take up to 30 days to dispute, so being proactive is essential. Once you have a clear picture of where you stand on the credit spectrum, work towards improving it.

  • Ask for a credit limit increase You may want to ask for a credit limit increase on an existing account a few months before shopping for a car. This improves your debt-to-credit ratio and, in many cases, will impact your credit score — at least temporarily.
  • Make current loan payments on time Your track record for payments is one of the most critical elements that make up your credit score. It’s also one of the best ways to boost it.
  • Reduce debt Focusing your efforts on reducing debt as much as possible will improve your credit utilization ratio and simplify your finances. Not only will reducing debt make new payments more manageable but will increase your score. Find ways to cut your spending and use that excess to make additional payments toward your existing balance.

Step 2: Create a budget

You have to know what you can reasonably afford. Entering into a loan that you can’t repay is a financial misstep you may not recover from. Take a look at all of your spending and decide what you can eliminate and what you can’t live without. Don’t overestimate how much you can commit to saving each month; be realistic about your financial situation. Creating a budget eradicates the unknowing of how much of a loan you should take out.

Step 3: Shop around

A bad credit score can make getting a car loan tricky, but that doesn’t mean you have to settle for whatever rate comes your way. You don’t need to limit yourself to one lender. Rates will vary across granters, so take the time to do some research and compare options. Getting prequalified will get you rates from lenders, but they are subject to vary since they are only based on a soft credit pull.

Step 4: Review and finalize loan

You don’t have to jump at the first offer that comes your way, and you should always compare options. Look at the loan term as a whole, not just the monthly payment. A lower monthly payment will mean more interest over time. If you’re not careful, you could end up paying more than your car is worth. You’re always looking for the most favorable terms, though remember to be realistic about how much you can afford to repay each month. When your loan is finalized, immediately plan how you’re going to repay it.

Bad credit auto loans FAQ

Will credit checks count against my credit rating?

Too many checks in a short period of time are not ideal. Try to get a preapproved bad credit auto loan before visiting a car dealership. They often run your credit through several vendors to get approval, and this will only weaken your credit, making auto loan financing difficult.

Should I use a cosigner if I have bad credit?

Yes. Lenders may be more willing to approve an application if you have a qualified cosigner. You’re also more likely to receive a lower interest rate or a larger loan with the help of a cosigner.

How can I fix my credit?

One of the best ways to build your credit is to make debt payments on time. In addition to paying off high-interest balances, try not to take on any extra debt if you’re attempting to improve your score.

Can I get a loan if I’m unemployed?

It depends on the lender. Most often, lenders will look at employment history when approving you for a loan. However, the biggest consideration is your credit score. If you have a long employment history and good credit, you may qualify for a personal loan. But, it may have to be secured by collateral so your lender knows it will be paid back. Visit Emergency Loans for the Unemployed to learn more.

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.

Too long, didn’t read?

The good news is that if you have bad credit, your situation is not hopeless and there are options available to you to secure an auto loan. Even though the best bad credit car loan rates will be higher than traditional options, it’s crucial that you read all the terms so you aren’t signing up for something you can’t repay. With so many options available, most buyers will be able to find themselves a reliable vehicle — regardless of their credit history.

Keep reading

Methodology

The SimpleScore is our proprietary scoring metric to compare products and services at The Simple Dollar in a transparent, evidence-based way. Our editorial team identifies five quantifiable aspects to compare for every brand, determines the rating criteria for each aspect score, then averages the five aspect scores to produce a single SimpleScore. For bad credit auto loans, we compared interest rates, terms, amount, transparency and fees for every major lender. Our ratings are meant to be a directional tool to help you in the process of choosing an auto loan provider. Be sure to continue your research and shop around for the best auto loan that fits your specific needs.

We welcome your feedback on this article and would love to hear about your experience with the personal loans we recommend. Contact us at inquiries@thesimpledollar.com with comments or questions.

COVID mask

The impact of Covid-19 on bad credit auto loans.

Protecting your credit score is essential to your financial success. But in the wake of the economic uncertainties surrounding the Covid-19, it's more important than ever. In April, major credit bureaus, Equifax, Experian and Transunion made a joint decision to offer free weekly credit reports for the next year to help people manage their credit during the pandemic. Likewise, credit counseling agencies are also offering help to people affected by Covid-19. The National Foundation for Credit Counseling (NFCC), for example, is allowing people to receive free credit guidance from a nonprofit credit counselor.

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