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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?

    • 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.

  • 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.

    • 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.


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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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