Quick Facts About Bad-Credit Car Financing
- Even borrowers with numbers in the lowest credit score categories may find auto loan financing.
- You should dispute errors on your credit report when you find inaccurate information that lowers your credit score.
- Increasing your down payment on the car helps convince potential lenders that you are serious about your finances.
Financing a car with bad credit can be difficult but not necessarily impossible. The credit experts at Experian report that loans to higher-risk borrowers decreased as a percentage of all car loans in the first quarter of 2024.
Here’s the reality of getting a car loan: Lenders earn money by making loans. They not only want to finance cars, but they must finance cars to survive. Your goal is to find the lender that wants to finance your next vehicle by making yourself appear as “low-risk” as possible. Read on for the five keys to doing just that.
- Check Your Credit Score
- Get Your Credit Report
- Boost Your Credit Score
- Increase Your Down Payment
- Shop Around for Loan Preapproval
1. Check Your Credit Score
Your credit score is a snapshot of your creditworthiness at any given moment. It can change from week to week or month to month. If you haven’t checked it in the past six months, do so before shopping for an auto loan. It’s the first piece of information a lender considers. It serves as the best initial tool a lender uses to determine your credit status and the interest rate you qualify for.
How Do I Obtain My Credit Score?
There are several legitimate online sources for obtaining your score, such as Experian’s Free Credit Score. Many credit card companies provide free credit scores to cardholders.
Credit Scores for Auto Loans
Borrowers in Experian’s Subprime and Deep subprime categories often have a significant ding to their credit sometime in the recent past. Subprime borrowers have credit scores of 501 to 600; the Deep Subprime category is below 500. Loans sent to collection, bankruptcy, or the repossession of a home or car can throw a borrower into one of those lower credit-score categories.
The good news is that car financing isn’t only available to those with gold-plated credit. However, following recent trends, lenders issued fewer auto loans to those with weaker credit in the first quarter of 2024 than during the same period the previous year. The latest data available shows that those two categories of borrowers secured nearly 16% of all new and used car loans and leases in the first quarter of 2024, compared to 16.5% in the same period last year.
Additionally, borrowers in Experian’s Nonprime category continue falling back from nearly 17% in 2022 and 16.16% in 2023 to 15.35% in 2024. These are borrowers with a credit score between 601 and 660.
What Is the Lowest Credit Score to Finance a Car?
The lowest credit score to finance a car is zero. Wait, what? That’s right. A credit score represents your level of risk to a lender. The lower the number, the higher the risk. However, no matter how low your score, if you look hard enough, you can find a lender willing to finance your car loan. The lower the credit score, the more likely that lender will be a “buy here, pay here” dealer. You may find yourself with a vehicle the dealer is willing to sell you rather than the one you want. The terms of the loan won’t be ideal. The interest rate will be high, and the dealer may require you to pay in person on a weekly basis. Moreover, missing a payment by even a day may result in repossession. But, you will have transportation.
2. Get Your Credit Report
While a credit score is a snapshot of your current credit health, a credit report provides your credit history, including previous and active loans, and whether you pay on time. It will also show any loans that have gone into collection, bankruptcy, and repossession. Three major credit information agencies — Experian, TransUnion, and Equifax — collect information from lenders to build your report, which they supply to lenders upon request. You need to know what is in your report before a potential lender sees it.
How Do I Obtain My Credit Report?
You have a right to one free report per year from each agency. Order your report and use it as a roadmap to repair any negative information.
3. Boost Your Credit Score
Never take for granted that lenders have provided the three credit-reporting agencies with accurate information. They do make mistakes. Each agency has its own established procedures for disputing misinformation. If you find an error on your credit report, make a formal dispute with the reporting credit agency yourself. You must do this with each agency where the misinformation appears. They don’t talk to one another.
How Do I Raise My Credit Score?
Take the time to do whatever you can to clean up any legitimate negative marks on your report. Pay off balances in collection, and pay all accounts to make them current. Paying your creditors on time is the best way to improve your credit score.
Is It Bad to Finance a Car With Bad Credit?
No, it’s not bad to finance a car with bad credit. However, if you are already experiencing issues with making credit payments on time, adding another monthly obligation will only make things worse. If you are simply saddled with a poor credit report and low credit score because of a past repossession or bankruptcy, your current level of indebtedness and steady income may allow you to introduce a car payment into your budget. We urge you, though, to be mindful of the other expenses, like auto insurance, fuel, and maintenance that come with any car purchase. Your budget needs to accommodate the total cost of your car ownership.
Can I Get a Car Loan with Bad Credit?
Some lenders may be willing to give you an auto loan if your credit is bad. However, the loan will come with a higher interest rate and you might be required to make a large down payment. See our affordability calculator to know what you can afford before shopping for a car.
Can I Lease a Car with Bad Credit?
You might be able to lease a car if you have bad credit. However, you will likely be required to put down more money upfront and pay a higher interest rate than car shoppers with better credit scores. Use our car leasing calculator to estimate your payments.
4. Increase Your Down Payment
Anyone under financial stress will probably struggle to scrape together a decent down payment. However, the more “skin” you have in the deal, the more likely a lender will take a chance on you.
How Important Is a Bigger Down Payment?
A hefty down payment may even motivate the lender to charge a lower interest rate. Lending is all about risk. Lenders believe the more equity (down payment) you have in a car, the less likely you will default on the loan. Whether it’s a home mortgage or a car loan, lenders view 20% as a reasonable down payment. The better your credit, the better your chance of putting up a smaller down payment. However, if your credit is really weak, putting down more will help convince a lender you are serious about your finances. It will further improve your chances.
5. Shop Around for a Car Loan
No matter how weak you believe your credit is, it might be better than you think. Before ever setting foot on a dealer’s lot, you should approach various lenders to get preapproved for a loan. Remember that finance companies are probably your best shot at securing a subprime loan. However, banks and credit unions are beginning to look more favorably on borrowers with less-than-sterling credit. Don’t rule them out in your search.
Where Can I Get a Car Loan?
Even the lending divisions of some carmakers, such as GM Financial, are open to financing a car for those with weaker credit. You will have to apply with these carmaker-owned finance companies at the dealership. Still, shop around beforehand for a ballpark idea of the interest rate you can expect because it affects how much you can afford when buying a car.
Your last resort may be a “buy here, pay here” (BHPH) dealer. If you need to finance through a tote-your-note dealer, take a little time and find one that works with one of the credit bureaus. You will pay a much higher interest rate than through a conventional lender. So, you might as well ensure that you get credit for your on-time payments. It will make securing your next car loan easier and may earn you a lower interest rate next time. If you search buy-here-pay-here options enough, you may find a franchise car dealer making BHPH deals on used cars.
Read Related Car Buying Articles:
- Buying a Car: How Much Can I Afford?
- Can You Buy a Car with a Credit Card?
- Car Financing Glossary: Finance Terminology Explained
Editor’s Note: This article has been updated for accuracy since it was originally published.
They tell me I have bad credit, however, I just do not have any. My total I owe is 2700.00 and I have been disputing those.
how about just setting some money to the side every payday then when you need a car you have either a high d down payment or can buy cash
I purchased a car that took my last $6,000. I was about to loose my job and knew it would have to last me. The salesman knew this, well it lasted 12 months and now the transmission is going out. Plus I spent about $2000 on repairs and new tires. Now no one wants to trade me and I don’t have a job to make payments. Seams always bad luck and obstacles. I thought the salesman cared and he seemed like a good guy. He knew that vehicle would las because it is a traverse with 160,000. People should trar others the way they would like to be treated. You know the Golden rule. But that’s not the way the world is nowadays nobody really cares and it’s sad because now I don’t have a vehicle and I have to walk to try to find a job and it’s hot as heck outside and I have two degrees working on my third and no one will give me a job. I’d be better off if I was being lazy and could like an employment and living off a welfare and having kids and getting food stamps but I’m not I’m a hard-working individual trying to make it this world is so backwards
I agree Jennifer!
Nothing stay away from it it’s still only a Chevrolet suburban underneath all the Cadillac bling interior more bling you also get a nice two orv3 piece of plastic that attaches to top of the engine hiding the plug wires valve covers big deal I say Cadillac Escalades are over rated over priced suburban or Tahoe is all it is under all the classy emblems headlight lenses are different tail lights I believe different and you get 6.0 liter engine suburban usually 5.3 liter come to thinning it I don’t ever remembering seeing suburban with a 6.0 liter I worked as a Chevrolet technician since 83 to 2012 no one’s going to feel difference in 6.0 and 5.3 engines All I know is it’s still a Chevy suburban or Tahoe or GMC Yukon or GMC Denali platform underneath it’s all same except some all wheel drive front differential is also little different and seem to inherit problems if I remember right it designed to always be engaged unlike normal 4×4 they are disengaged in 2 wheel and usually never have any issues except maybe gear oil leaks from
Output seals or case half’s So do pricing on gmc and Chevrolet and Cadillacs suburban or Yukon I bet it’s double price for a 2004 at least lot more expensive but don’t listen to me I just never liked Escalades because things I just wrote mainly the price between Chevy and Cadillac
What would you want down on the 2004 Escalade
So I have a cashier’s check that was sent to me by my old bank closing my account out. Can I turn around and use that same cashier’s check and sign the ownership over to a car dealership or lot to buy a car ?
I have always felt the exact same way Robyn!! Same with everything in life, only the wealthy get the deals. We pay out the ass! We generally work the hardest as well. I have paid a car loan since 1989! Some good, some bad, some crazy! But here I am again, back for more. Salesmen see a bullseye on my back! LOL 😅
Buying a car without a down payment can be a tricky situation, Katy. No-money-down options may be available at some buy-here-pay-here independent dealerships. The tradeoff is that you’ll likely face higher interest rates than those on loans where a down payment is used. Plus, your monthly payments will be higher because you’ll be borrowing the total cost of the car.
I need a car but don’t have a down payment
so true
So true
I agree it is wrong that people with lower credit scores & less money pay higher interest rates.
Its not fair, it doesn’t make sense whatsoever!
TBT this is probably why most people have bad credit in the 1st place!
People that have money & credit keep their money, buy a car then trade it in every couple years to get another new car.
While poorer people pay ridiculous interest rates on that same car now used, pay for at least 5 years which doubles price. You get stuck in a loan that doesn’t help your credit much since you owe more then car is worth, you can’t refinance or trade in, and hope car doesn’t break down before it’s paid off.
It’s a vicious cycle!!
In my opinion it’s discrimination against the less fortunate!!
wow Robyne you are on point. I appreciate your comment
I just paid 3 years of bhph payments of 580 a month and was told they used a bank so I would be cleaning up my credit at the same time, well the truck broke down for the 3rd and final time , I pulled my bank account and changed my account number so they couldn’t withdraw money from my bank account without making the situation right, long story short the bank they used dropped them for non payments and they never told me I was paying them and not getting credit, talk about pissed !! I wanted to buy a dodge challenger and found out my credit score is worse if not the same as when I started, the poor people always get the shaft , credit repotting is a scam and benefits rich people
Nah dead ass how can somebody whose doesn’t have good credit or bad credit can’t get given the chance to just pay the shit like how hard is it I really don’t understand the logic behind even why financing exists cause it helps people who wave good to decent credit smh
I feel ya bro!!! I’m getting fd in all areas of life!!!
I know what u r saying, but think of it like what if it was your money that you are loaning out. Would you rather loan to Mike that has paid off several cars and is always on time paying payments and has $20,000 in savings account…..or Jimmy Jack that has defaults, repossessions, and spends his check every week and has to dig into his savings every week and has $3.05 in his savings? What it is, if you can’t afford to pay for it outright, then Don’t get it! I Don’t believe in banks anyhow, making money off of your money….it’s like paying a friend to hold ur money. It’s easy to want but much harder to keep paying for that want.
I just wanted to say how is everyone ok with the way thay charge someone with lower income/bad credit more money with higher rates and apr than people who can afford it that don’t need it but expect people not to get behind on other bills / with double the payments and 3 times higher APR than everyone elts and trying to keep a car to make it to work every day that’s what is rong with this world no common sense or compassion for each other
This is some good information that I have not taken serious, but I learn my lesson the hard way. Thanks and I will pass your information on to family and friends.
good info
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