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6 min read Published March 02, 2023

The writer is Hanneh Bareham. Written by student loans reporter Hanneh Bareham specializes in everything related to personal and student loans and helping you finance your next project. She is determined to assist students achieve their college and financial goals by making loans easier to understand. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has written and edited for Bankrate from late 2021. They are committed to helping readers gain confidence to manage their finances with concise, well-studied information that breaks down complicated subjects into bite-sized pieces. The Bankrate guarantee

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There are money-related questions. Bankrate has answers. Our experts have helped you understand your money for over four decades. We strive to continuously provide our readers with the professional advice and tools needed to succeed throughout life’s financial journey. Bankrate adheres to strict standards policy, which means you can be confident that our content is honest and precise. Our award-winning editors, reporters and editors create honest and accurate content that will help you make the best financial decisions. The content created by our editorial staff is objective, factual and is not influenced by our advertisers. We’re transparent regarding how we’re able to bring quality information, competitive rates and useful tools to you , by describing how we earn money. is an independent, advertising-supported publisher and comparison service. We receive compensation for the placement of sponsored products and services, or by you clicking on certain links posted on our site. This compensation could impact how, where and in what order products are listed and categories, unless it is prohibited by law. This is the case for our mortgage, home equity and other home loan products. Other factors, like our own website rules and whether a product is available within your area or at your self-selected credit score range could also affect how and where products appear on this website. While we strive to provide a wide range offers, Bankrate does not include details about every financial or credit product or service. If you have a poor credit score, you may be concerned about whether you will be approved for a car loan from a traditional lender. However, before you take out a loan through a dealer who buys-here-pay-here, consider researching all possible possibilities. Even though being a victim of bad credit — a credit score of between 300 and 500 — could make getting a loan difficult task, it’s not difficult. Additionally, you’ll notice that the costs of borrowing are less with a bank, credit union, or online lender whatever your credit scores. Steps to get a car loan for those with bad credit Prepare on several areas prior to starting the process of applying to get an automobile loan for those with bad credit. Pay special attention to your credit score and make certain that all terms are in place prior to making the purchase. 1. Know your credit score Before you begin the shopping process, check the credit scores of your customers. Based on the FICO credit scoring system that can range from 300-850 Any score lower than 580 is considered to be poor. It is important to know that your FICO score will be calculated based on factors like how much you owe and the duration of your credit record, and your payment history. Paying your bills on time, regularly spending more than your available monthly credit, and having a bad credit history can all negatively impact the score of your credit. The Bankrate advice

Prior to you apply for an auto loan, avoid opening any new credit card or loans. Be sure to do this prior to when you start shopping puts you in a more favorable standing with the lenders.

2. Set aside money for a downpayment If you have a lower credit score, on the road, a car could increase your odds of being accepted for the auto loan. Saving a little money each month to pay to pay for a down payment could also offset more expensive interest rates due to poor credit scores and could lower your loan-to-value ratio, which can help you qualify for better conditions. Experts suggest a downpayment of at least 20 , but if that’s too much, you can pay what you’re able to pay. It is possible that dealers that work with credit-challenged clients will allow down payments as low as $1,000. 3. Research as much as you can to avoid being in a rush when it’s time to negotiate. Before you submit an application for a loan be aware of the typical APRs for auto lenders. If you have a bad credit score, you’ll likely receive the highest advertised rates. If you’re purchasing used, it also helps to be aware of the condition of the car you want to purchase. 4. Explore the options once you have started your search do not limit yourself to just one lender. There are many lenders that can assist you to get an loan, including: Banks and credit unions: If you already have an existing relationship with a bank or credit union, start by looking here. Certain credit unions and banks provide members with discounted rates. Online lenders: Many online lenders offer a prequalification tool on their websites. This lets you know the conditions you could be eligible for prior to applying. This can save you a hard credit check in the event that you do not meet the criteria. Car dealerships: You can be approved if you satisfy the credit and financial guidelines. You’ll meet with an agent from the finance department, and they’ll send your details to various lenders. Some dealers may also offer programs for borrowers with a bad credit history. However, they typically mark up rates they offer to make more money from the deal. Pay-here and buy-here dealers are a good option. Pay-here or Buy-here dealerships are a good option if you don’t get approved by banks or lender for a loan however, you should be wary. Although these dealers are more likely to approve someone with , the interest rates are often much higher. Bankrate tip

They conduct an extensive credit test in the course of applying. It’s wise to consider at least three different lenders over a period of 14 days so your credit score doesn’t be hit by multiple slaps.

5. Prequalify with lenders. Prequalification allows you to see whether you’re qualified for an loan prior to submitting an application and see the estimated loan terms. In addition, you’ll reduce time in applications and avoid unnecessary credit checks, which can affect the credit rating. After you’ve been prequalified by a few lenders, you can submit documentation and get preapproved. This will lead to a formal credit report, however a loan has more weight because it represents the lender’s commitment to provide an automobile loan towards you. Additionally, you’ll have leverage when walking into the dealership, and you can negotiate as a cash buyer. 6. Make sure that the terms are final. Avoid subprime lending Subprime lenders could appear to be a safe bet to anyone wondering how to get a car loan that has bad credit. These lenders usually cater to those with less credit scores and make the car purchasing process seem effortless and easy- at first. However, they can also come with high rates of interest, and can result in the payment of thousands of dollars on interest for the duration of the loan. Tips for banks

Consider subprime lenders only in the event that you do not have an alternative financing source.

7. The terms of the shop loan terms do not include monthly payments. monthly payments look good on paper and are usually used to lure buyers. They may lead to you paying more for your vehicle over the course of the loan because they . Because the car loans specifically designed for bad credit have higher APRs they could result in paying more than the car’s worth by the expiration of the loan because of interest accumulation. When shopping for a car for a loan, you should look for the most favorable terms — usually with the lowest interest rate over the shortest period. So, you’ll be able to make more affordable monthly payments with reasonable interest rates. If you are unable to locate a lower APR look into buying another vehicle. 8. Bring a friend with you — and consider co-signing with an acquaintance or family member to go with you, suggests Massachusetts-based consumer attorney Yvonne Rosmarin. A trusted friend or relative at the table to negotiate can to build confidence. A sense of confidence, when paired with knowledge, could help you negotiate better loan conditions. Consider asking a trusted relative or partner to become a . Ideally, the person must have a stable earnings source, strong credit score, and a stellar credit history. Co-signers decrease a lot of the risk that lenders faceas the co-signer is accountable for the loan in the event of a default on your payments. Adding a co-signer can be an advantage and typically results in an interest rate that is lower. 9. Beware of add-ons and frauds. Nonprime buyers are more likely to encounter loans that do not include essential goods and services, says Josh Frank, former senior researcher for the Center for Responsible Lending. Other expenses, like , can pile up for buyers who are not prime. Never agree to a loan which is contingent on additional warranties, for example, extended warranties, after-market services or . Take note of such add-ons particularly if you’re planning to apply to a pay-here, buy-here, or buy-here dealer or you are planning to sell your car. Be aware that incorporating these costs into the loan means you’ll pay more interest during the loan time. 10. Check that the terms are final If you purchase a loan via a dealer always make sure the terms are in place before you sign. If you don’t, you could have to pay more for your monthly payments. Some shady dealers tell car buyers that their financing may not be completed until the buyer completes the purchase. They then inform the buyer that they have to accept the higher rate of interest or even return the vehicle. This is known as . Where to locate the bad credit car loan Car loans are available from most banks, credit unions, and online lenders. There is also dealership financing, as mentioned above. But if you have bad credit, you’re more likely to be able to secure a loan that has reasonable terms with the internet lender. Some credit unions will also approve you for an bad credit car loan if you have a good track record with their organization. Find out which Bankrate’s choices are the best options to consider. Cars with bad credit loan APRs Borrowers who have good or excellent credit score get the best attractive auto loan offers. This doesn’t mean that you’ll have fewer options when the credit rating is lower. However, your costs for borrowing are likely to be higher due to the risk you pose to the lender. Here’s a breakdown on the current average interest rates by credit score for the fourth quarter of 2022 Credit score range

New car

Used car

Deep Subprime 300 to 500



Subprime: 501-600



Near Prime 601 to 660



Prime 661 to 780



Super Prime 781 to 850



Next steps If you are in the process of establishing bad credit, it may be tougher for you to secure an auto loan. There could be lower interest rates or predatory lending practices. The good news is that doing your research, saving to pay for a down payment, and getting preapproved help you prepare to get the most favorable rate for an automobile loan. If this is the loan for you, make timely payments to help boost your credit score. At that point, ; you could be able to get a loan with even better conditions. Learn more


Written by Student loans reporter Hanneh Bareham specializes in everything connected to student and personal loans and can assist you in financing your next endeavor. She is determined to assist people achieve their collegiate and financial goals through making loans easier to understand. Edited by Rhys Subitch Edited by Auto loans editor Rhys has written and edited for Bankrate from late 2021. They are passionate about helping readers gain confidence to manage their finances by providing concise, well-researched, and well-researched content that breaks down complicated topics into manageable bites.

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