Sign up for your free Credit.com account    Sign Up Now
From the Experts at Credit.com

Are There Car Loans for People with Bad Credit?

by Gerri Detweiler

Car Loans for People with Bad Credit

In many parts of the country, a car or truck is a necessity. Unless you’ve managed to save enough to pay cash for your next vehicle, you’ll have to get an auto loan. But what if your credit is bad? Can you even get a loan?

There are car loans for people with bad credit, but you need to be careful when shopping for one to make sure you aren’t overcharged.

If you’re looking for a bad credit auto loan, the first step is to check your credit report and scores. This step is critical, because one of the reasons auto shoppers overpay for these loans is because they think their credit is worse than it is, and they settle for whatever they can get.

You can check your credit scores and get an easy to understand overview of the information in your credit report for free once a month at Credit.com. In addition to your score, you will see what factors are having the most impact on your scores.

There’s another reason to check your free credit reports: you may find mistakes on your credit reports that, if fixed, will help boost your credit scores. If possible, give yourself at least thirty days to dispute credit report mistakes before you start car loan shopping.

After you have checked your credit and fixed any errors, it’s time to start shopping for an auto loan to see what is available.

Be smart about your credit while you are shopping for an auto loan. Every time a lender pulls your credit report, it creates an inquiry on your file, and these inquiries can hurt your credit scores. Most scoring models will count auto loan inquiries with a certain window – usually 14 – 45 days – as a single inquiry. To be on the safe side, then, limit your auto loan shopping to a two-week period to avoid damaging your credit scores even further.

More Ways to Save Money On Auto Loans

If your credit is poor, you may have to pay a higher rate until you can improve your credit scores. But even then, there are things you can do to save money:

Choose a shorter term loan. A 3-year loan will typically carry a lower interest rate than a 5-year loan. Plus you’ll save money by paying off the loan faster!

Buy a newer vehicle. Loans for used vehicles are usually more expensive than those for new vehicles. It goes without saying, though, that if you find a really good deal on a used auto, consider it. You can still come out ahead, even with a higher interest rate.

Don’t load up on extras. The dealer will probably try to convince you that you to spring for extras like rustproofing, paint protection, VIN etching and more. They’ll probably point out that these extras will just add a few dollars to your monthly payment. That may be true, but over time, those extra dollars really add up.

Bad Credit Auto Loans to Avoid

There are numerous traps that cause auto shoppers to overpay by billions of dollars, according to the Center for Responsible Lending. These include:

Loan markups: Dealers may profit when they steer consumers into higher cost loans.

Yo-Yo Financing: You take the vehicle home with you before the paperwork is finalized. Then the dealer tells you that you are stuck with a higher rate, or adds additional costs.

Loan packing: You are pushed into getting other services you may not need such as credit insurance, rustproofing, etc. Keep in mind that none of these extras are required. In the case of credit insurance, if you die before the loan is repaid, your heirs may be able to sell the vehicle or assume the payments, but they are not personally responsible for the loan unless they are a cosigner or they are your spouse and you live in a community property state.

“Buy here, pay here” car dealers: These dealers advertise loans regardless of credit history. The rates can be extremely high and the quality of the vehicles can be iffy. Many times these vehicles are repo’d, only to be sold to another buyer.


Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • rrdoucette

    My current vehicle is about to take a turn for the worst. It’s on its last leg. So I need to get a newer vehicle. But my credit is horrible. If it is possible to get a auto loan with bad credit then why is it so hard to find some one willing to approve you. I followed all the advice on this web page and was immediately denied at the very first place I went to. It’s very discouraging and shamefull to be rejected. So what should my next move be? Do I just keep trying different places or should I follow some sort of guideline? I can easily afford a car payment so I know the credit score is the only real obstacle in my way. No cash down! Any suggestions what I should do next would be greatly appreciated. Please help!

    • http://www.Credit.com/ Gerri Detweiler

      I am sure it’s incredibly frustrating. When you were turned down you should have received a notice stating your credit score and the main factors affecting your score. What did that letter say? Where did you apply?

    • Jennifer Gottfried

      Use some of that money to pay balances down on your credit cards. The lower debt to income ratio will significantly improve your credit (it’s about 35% of your score I believe). Even 10 points can make a difference as far as getting approved. You can also call the dealer and ask what kind of score or credit you need to get approved, and maybe even ask to bring in a copy of your report and meet with their finance person and they can give you tips about what to pay down or off in order to be approved. But be clear that it is only a meeting and you are NOT CAR SHOPPING that day. Don’t get tricked into applying for a loan that day for a car without doing lots of research first. Walk away if they won’t talk to you without agreeing not to sell you a car that day and go to another dealership.

    • Earl Kelly

      I have sold autos for 35 years. Your situation is not new it is like 9 out of 10 people I see everyday. They can make the payment but have no money down. Fact is only people with great credit get offered no money down deals. so don’t let them run your scores it will only make it lower in the end. buy here pay is typical avg 1-2 grand down those who advertise lower will not be including tax tag and title in the dwn pmt, so that would come due in 30 days along with your first payment. buyer beware, its just fact if you have bad or no credit you have to have a down payment

  • starsprt

    I bought a car new eight years ago with a chapter seven bankruptcy filed one and a half years beforehand. The additional interest came to twelve thousand dollars over the coarse of the seven year loan. I didn’t like the fact that my TRW Reports did not reflect the total amount that I paid. Also the payments toward the end of the loan did not match what I paid. When I went to the car dealership to ask why they did not show the total amount in full that I paid after pay off. Their reply was that it would have looked bad for me on my TRW Report that I paid that much for the car. It troubles me that some of these institutions can do what they want with regards to my credit reports.

    • http://www.Credit.com/ Gerri Detweiler

      They can’t do what they want. If they are willfully and knowingly reporting wrong information they may be violating federal law. It sounds like you paid this off fairly recently. I’d suggest you either talk with a consumer law attorney or file a complaint with the Consumer Financial Protection Bureau.

  • http://www.Credit.com/ Gerri Detweiler

    I’m curious – what have you done to rebuild your credit since your bankruptcy? Do you have other current positive credit references?

    • Jeffery Surratt

      I have eight credit cards with interest rates from 15%-25%. Credit limits from $500 to $2250. I also have a fingerhut account with a limit of $2770. Current balance $214 down from $1400. I always pay more than the minimum payments. Current credit use is at 70%. I have been turned down for a $800 no interest loan from a program through a local bank to replace a gas range. I will continue to pay down my debt, but will not be applying for any more credit until the bankruptcy is off my report in 2017. I would warn people to watch who you allow to try to get you a car loan. One dealership ran 5 credit aps and my score dropped 25 points.

      • http://www.Credit.com/ Gerri Detweiler

        Ah, I get it now. Unfortunately, those high debt usage ratios are definitely hurting your scores. But if everything is paid on time and you are able to get those balances down, then it sounds like you should see some significant improvement even with the bankruptcy on your reports.

  • http://www.credit.com/ Credit.com Credit Experts

    What are your questions?

  • http://www.Credit.com/ Gerri Detweiler

    Why don’t you talk to a credit union? At least you can get some advice up front before you start talking to dealerships. (My concern at the dealer is that they will shop your loan with multiple lenders which could create problems for you.)

  • Robert Wyatt

    pay cash, don’t borrow, EVER!

    • Herp Derpington

      Because that makes sense in the real world.

      • matt pike

        If you have to borrow for something as temporary as a car, then you are living above your means. It’s a car, not a house!

    • Nerissa

      Never borrow!

  • dave

    I had a bankruptcy discharged 01/14/2014 – how soon can I finance a new car

    • http://www.Credit.com/ Gerri Detweiler

      You can probably get one now – but you’ll pay a much higher rate. Be careful – if you go to the dealer you may wind up with multiple inquiries on your credit reports. You may want to try your bank or a local credit union first.

  • Jerry

    if I check my credit report once a month with Credit.com will that inquiry show up on my credit report and will it hurt my credit rating?

    • http://www.credit.com/ Credit.com Credit Experts

      It will not. Checking your own credit doesn’t affect your score, but having credit checked for purposes of extending credit does. You can read more here:
      Does Checking My Credit Score Hurt My Credit?

  • Rose

    I was in a serious auto accident & totaled my car the insurance paid all off but the $1,000. deductible. I spoke w/finance company after accident and stated that my attorney said deductible would be paid in settlement of my claim. Never heard from them again and received NO phone calls or letters. While checking my credit report, I noticed that finance co put on my credit report a charge off for said amount. i am so frustrated now and I do not want to pay them b/c that charge-off will always be there on my credit report even if I pay it. Is there anything I can do?

    • http://www.Credit.com/ Gerri Detweiler

      That is incredibly frustrating. First, have you talked with your attorney about it? If he or she can’t help you may want to try to file a complaint with the Consumer Financial Protection Bureau.

  • michelle

    My car just died. Our credit was murdered when my hubby had a stroke 2.5 years ago. Our mortgage became 6 months delinquent…the same as his hospital stay. he is now permanently disabled. I have been his caregiver since then, but have been searching for a job in my profession (real estate). I must have a decent car! i have found one in the 5k range. Is there a way to tap into my home equity? my payments have been on time now for over a year, and we have 30-50% equity in a house valued @ 375k. or more.

    • http://www.credit.com/ Credit.com Credit Experts

      Michelle —
      We’re sorry to hear about your husband’s health challenges and the resulting financial ones.
      You can check with a bank or credit union about a home equity loan or line of credit. But be aware that you would be putting your home at risk to finance a car, and think very carefully about whether there’s an alternative.
      Do you know your credit score? (Here’s how to monitor your credit score for free.) We strongly recommend keeping an eye on that. (It can also alert you to potential identity theft and help you put a stop to that sooner, when there is less of a mess to clean up.)

      Good luck to you.

      • michelle

        I am only considering this alternative because if i dont drive, i cant work. no work no pay , no pay, no house anyway..
        Also i am only considering a small loan… $6k~ keep payments to about $125. This will be my first time financing a car. my husband and i decided long ago to pay cash for everything except real property. i hate the idea of financing personal property, but i hate the idea of not being able to afford our mortgage worse!
        i just hope i can find a loan… somewhere. i cant even get to the bank lol, because i have no wheels! i will call them, i guess.

    • Biff Tannen

      you should first look at getting a lot cheaper house and smaller mortgage with only one income going forward

  • Meg

    Hello, I just need some advice I think. We are currently driving a minivan with 230,000 miles and are in need of a newer vehicle. My credit score is terrible (400s) and my husband’s is around 590. We are self employed and have been for over a year now. We are paying down our 2 credit cards and have 100 percent on time payments. What is the chance we would get approved for a car and what would we need to do because we are self employed? This year is our first year filing taxes as a business (we pay quarterly taxes though).

    • http://www.Credit.com/ Gerri Detweiler

      It’s going to be tough. Those are very low credit scores and the fact that you are recently self-employed will make it more difficult. You will likely have to pay a higher interest rate until you improve your credit. One option you may look into is assuming someone else’s lease for a year or two while you do that. (But you’ll have to qualify there too.) Do you belong to a credit union or bank with a local community bank? You may want to start there.

  • Biff Tannen

    having high credit card balances after a Bk is probably hurting you more than the BK itself after 7 yrs. i was able to get a reasonable rate car loan 2 yrs after a chap 7 BK and bought a house with zero down 5 yrs after the Bk was discharged (That was before zero down loans disappeared)

  • Biff Tannen

    You have to be able to find a cosigner with a good credit rating that understands and accepts the risk that cosigning a loan will affect their own ability to get future loans and if YOU mess up, it affects their credit also.

  • Des

    Hi, my boyfriend & I are looking to get our first car together. The problem is, he has a terrible credit score (400s) Because of student loans & I have no credit because I just graduated. We’ve tried everywhere & We’ve been searching like crazy. Every bank that is supposed to help with financing for bad credit has denied him, all we need is a loan, we have money. He makes $1500 a month & I make about $2500. What are our options? I’ve tried to apply for a credit card to build my credit through my bank but I haven’t gotten a response yet.

    • heavyw8t

      This is really simple. DON’T DO IT!! If he didn’t pay bills before that he has a score in the 400s, why do you think he will suddenly become responsible and pay you? Boyfriends come and go. His anticipated failure to pay for this car will stay on your credit report for several boyfriends to come. Or you will end up eating the loan to prevent the bad credit item and essentially buy him a car. DO NOT cosign for anybody. Ever.

      Also consider that if he has a history of not paying bills, is that car going to stay insured? If not, you will be on the line for any accidents he might have. Just don’t do it.

      Whether you “make money” or not is irrelevant. Remember that you also spend money. Possibly you spend more than you should. There is a reason he has a 400 credit score. Should you ever marry, your credit will be affected by his. I would sit down and have a frank discussion about his finances and gently suggest that he work on raising his scores. The blogs on credit.com contain a gold mine of great information on everything from how to check your credit report for erroneous information to setting up a budget. I raised my score by close to 100 points in 15 months by being responsible, setting up a budget, and following it without diverting. Most, if not all, of what I learned came from these blogs. If this is potentially more than a casual boyfriend and you think you may have a future together, this discussion has to happen before you would marry. Money is the most prevalent thing couples fight about. You can avoid that by discussing it now, setting up a plan, and putting that plan in motion, and most importantly, having the discipline to follow it. You may have skip “pizza and a movie night”, but that $50 you spend on that night, if you do it every week, is $200 that could go toward paying bills and recovering from whatever put him in the 400s.

    • matt pike

      If he’s making $1500 a month, then he has no business buying anything over 2 grand.

  • http://www.Credit.com/ Gerri Detweiler

    You have to talk to a lender or dealer to find out what they would require. There are many different programs available.

  • http://www.Credit.com/ Gerri Detweiler

    You might be able to get something but the interest rate is probably going to be very high in the car probably isn’t going to be very good unfortunately…

  • Jim

    Just found a job after two years of unemployment, now making about $9200 a month (went back to a former employer) but during my unemployment I had to file for BK and it should be discharged within the next two weeks. My credit score with Transition and Exquifax went from 580 to 711 after the public records were posted to my reports. What are my chances of getting a car loan with my monthly income? I’m sure my interest rate will be higher than normal but how much higher?

    • http://www.Credit.com/ Gerri Detweiler

      I am not sure I quite follow–your scores are now at 580 or 711?

      First, I would suggest you wait until your bankruptcy is discharged. Secondly, it appears that you are now making a very high income and probably have little or no debt. So can you buy a used car for cash and drive it while you work on your credit? It might be preferable to getting into a very expensive car loan.

      (I don’t know what rate you’d be charged but if your scores are in the 500’s it will be high, at least until you bring them up.)

      • Jim

        My credit score went from 580 prior to BK to 711 after the BK hit my credit report. Hope this clears up any misunderstanding.

        • http://www.Credit.com/ Gerri Detweiler

          Ah so it’s 711 now? Depending on which model is used by the car dealer you may be able to get a decent rate. You may want to talk with a local credit union or community bank. Just be careful about letting a dealer shop your loan as that could create an issue with inquiries.

  • courious

    ?I have never had taken out a loan. how do I start? I don’t think I even have any credit

    • http://www.Credit.com/ Gerri Detweiler

      You can try to get your
      free annual credit reports. If you have any credit history, you will be successful. If you don’t have any credit history and have the time to build some credit I would suggest you consider starting with a secured credit card.

  • ethan

    I am looking to finance a used car and have a credit score of about 687. However, I think it is considered limited credit because I just have two credit cards. The first I have had for a little over a year with a limit of $2,500 and a $1,400 balance. And the other was just opened last month with a $2,500 limit and a $350 balance. Besides for that I don’t pay any other bills or have any loans. Is my best option a credit union,co-signer, or something else?

    • http://www.Credit.com/ Gerri Detweiler

      I’d suggest you start by trying to get a loan preapproved with a trusted lender such as your bank or local credit union. You may be pleasantly surprised. Before you start looking at alternatives see what you qualify for now.

  • Sincoles

    Hey I’m 22 years old male ..When I was 18 I got a few credit cards I owe about 2,000 all together (walmart $250, Bank of America $500, Westherr 1,200 (New tires )and I brought a new car but got in a accident b4 car was completely paid for car cost $13,000 but after lian fees and taxes loan was $15,000..when car was totaled Insurance company paid $10,000 left me with a debt $5000..So all together I’m about 7, 000 in debt and haven’t had a new car or credit card or nothing in my nane in 2years..I have a decent job now and need a new car but I want to build my credit at the same time..not monthly living expenses about $700 a month but I bring home about 2 grand where should I start Im a member of a credit union..I’m older wiser and trying to do better! Oh shoot I forgot I owe my school additional $2, 000 but I’m still in school

    • http://www.Credit.com/ Gerri Detweiler

      Have you talked with the credit union? Many of them have financial counselors who can help you put together a plan. If not, you may want to talk with a reputable credit counseling agency that should be able to help you do that. Another option might be a consolidation loan so you have one debt with a fixed monthly payment and a debt-free date built in. Learn more here: Debt Consolidation: The Pros and Cons of Your Major Options

  • Barry Wisell

    Hi I’m looking to replace my 1998 Saturn with a new or slightly used vehicle. Had to file for bankruptcy in 2009 and I’ve had no credit cards since then. I do own a home that I have been paying for since 2002 never missed a payment. Found out my credit score is a right around 700. What’s my chances on getting a car loan because the Saturn is about to die.

    • http://www.Credit.com/ Gerri Detweiler

      I can’t imagine you’ll have too much trouble. That’s a
      good credit score and your bankruptcy is well behind you. My suggestion is to get preapproved with a trusted lender before you start shopping.

      • Barry Wisell

        Thanks Gerri, I appreciate the feedback.

        • http://www.Credit.com/ Gerri Detweiler

          Let us know what happens!

  • Tyrus

    Looking to finance a used car. After tax, tags, title, etc. it’s just under $10,000. I’m looking to put between 2000-2500 down. My credit score as of my last inquiry is 691. First time financing a vehicle. Should I finance through the dealer, credit union, bank (wells-fargo)???

    • http://www.Credit.com/ Gerri Detweiler

      Your score doesn’t sound terrible and you have a good down payment. We would recommend you get preapproved before you go to the dealership.

  • Alicia

    I have bad credit as result of my ex husband opening accounts in my name. I own my home and have about 60,000 worth of equity in it. Where can I find a loan to wipe out all of the debt which is about 39,000?

    • http://www.credit.com/ Credit.com Credit Experts

      Alicia —
      Without information on income, credit, debt obligations, etc., it would be hard to know. First, have the accounts that hurt your credit been closed? (Second, if the accounts were opened without your knowledge or permission, you might want to see a lawyer.) It sounds as if you are thinking about a home equity loan. If that is the case, keep in mind it would be trading unsecured debt for debt secured by your home. Before you apply for anything, we hope you’ll check your free annual credit reports for accuracy and dispute any information that is incorrect. Here’s how to monitor your credit score for free.

  • Preston White

    My dad got a car from CarMart and added my name on it to build my credit. Well I went to a major car dealership to get a new car but I was told that as long as my name was on the other car I couldn’t get it. Is there anything I could do? One car salesmen told me to do a voluntary repossession?

    • http://www.Credit.com/ Gerri Detweiler

      A voluntary repossession is extreme and you probably won’t get a car loan after you do that! Have you talked with your father and asked him if he can refinance the car in his own name to remove you from the loan?

  • nate

    According to credit.com I have an excellent credit score, could it be wrong? I know i have some negative things in my credit history by I do have some good things as well… I’m curious because I’m honestly really surprised myself at how good they say it is.

    • http://blog.credit.com/ Kali Geldis

      Hi Nate —

      If you know you have a few negative things on your report, they could have aged off and are no longer considered for credit scoring purposes. The data of Credit.com’s credit scores comes from your Experian credit report. You can pull your credit report from each of the major credit reporting agencies (Experian, Equifax and Transunion) once a year at AnnualCreditReport.com (it’s the government-mandated site). You can read more about how to check your credit reports for free here:

      http://www.credit.com/credit-reports/free-annual-credit-report/

      Update us if you find anything interesting!


Sign up for your free Credit.com account. Learn More
  • Meet Our Expert

    gerri_detweiler GravatarGerri Detweiler is Credit.com's Director of Consumer Education. She focuses on helping people understand their credit and debt, and writes about those issues, as well as financial legislation, budgeting, debt recovery and savings strategies. She is also the co-author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights, and Reduce Stress: Real-Life Solutions for Solving Your Credit Crisis as well as host of TalkCreditRadio.com.
  • Stay Connected to Our Experts

    Please submit your email address to get credit & money tips & advice
    from our team of 50+ experts, delivered weekly to your inbox.
X

Check Your Credit For FREE

Free Credit ScoreGet a FREE personalized credit check-up today.

Get Started – It’s Free!