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How do I get a car loan if I have bad credit?
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Last Updated
13th of April, 2010

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There are car loan options for borrowers less-than-perfect credit. You can qualify for auto loans even with a repossession, foreclosure, or bankruptcy record on your credit file. Before you do so, do your homework and read up about your options when you refinance.

Because auto loans are “secured” by the car, they are less risky for lenders and that opens up programs for people with troubled credit histories. However, if you have poor credit, you’re going to pay more in interest and fees.

Your credit score really comes into play when you’re in the market for a new vehicle. Before you apply for an auto loan, try these steps to present yourself in the best light:

  1. Check your credit reports and scores. If there are inaccuracies, report and correct them before you apply for loans.
  2. Do your homework. Not every lender reports to all three of the credit bureaus, and for this reason you may have a higher credit score at one of the bureaus. If this is the case, apply for your auto loans with lenders and dealerships that use the credit bureau where your score is the highest. This is relevant because auto dealers and lending institutions often only pull your credit file and scores from one bureau, so with some advance planning you can present your strongest suit.
  3. Pay down your credit card balances a month in advance. In the first place, this may give you a little boost when the lender goes to pull your scores because you will have more available credit. Secondly, with more available credit you may be able to use your credit card to make a larger down payment on the car and as a result you may be able to get a better APR (annual percentage rate, or the interest you pay on the car loan). If you do this, just make sure that you will be able to cover the charge on the credit card by the end of the grace period. Otherwise, you may end up paying a lot more in interest on the credit card than you would have if you were just paying the interest on the car loan directly.
  4. Research loans from different sources. Subprime borrowers will usually get the best deal directly from a dealership financing office. But it is still smart to see if you might qualify for better loan terms from an online lender or local credit union before you buy.

    The terms and conditions offered by secured lenders – banks, credit unions and finance companies who lend on things like car and home purchases – vary widely. So do your homework and good luck!
Get more information about auto financing and shopping for car loans. You can also apply for an auto loan today!

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