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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.


  • 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?

  • 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.)


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  • 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.
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