4 Auto Loans for Bad Credit:
Road to Approval [2023 Updated]

What is Bad Credit for an Auto Loan?

Qualifying for a standard auto loan may be difficult if your credit score is below 620. FICO considers credit scores below 580 "poor" and below 620 "subprime" for auto lending.

Lenders view borrowers with bad credit as higher risk, so they may charge higher interest rates, approve lower loan amounts, require a larger down payment, or deny the auto loan application altogether.

If you have bad credit, don't lose hope. There are still ways to get auto financing. You can consider applying for a bad credit auto loan from a specialized dealership, online lender, bank, or credit union. Although the loan terms may not be perfect, making timely payments on a bad credit auto loan can help you improve your credit history.

Four Types of Lenders that Offer Auto Loans for Bad Credit

Banks and Credit Unions

Banks and credit unions are traditional financial institutions that provide various loan products, including auto loans.

While they may have stricter lending criteria compared to other lenders, some banks and credit unions offer specialized auto loan programs for individuals with bad credit.

Credit unions are particularly appealing as they offer competitive interest rates and more flexible terms due to their member-owned structure and focus on serving their members. Consider exploring these options to find the best auto loan for your needs, even if you have bad credit.

Online Loan Marketplaces

Online loan marketplaces are platforms that connect borrowers with multiple lenders, allowing individuals to compare loan offers from various sources.

For individuals with bad credit, online marketplaces are a useful tool to compare auto loan offers from multiple lenders. These marketplaces allow borrowers to easily access and compare rates and terms for bad credit auto loans and potentially find more favorable loan options.

Online Car Retailers

There are a few online car retailers, such as Carvana and Vroom, that offer financing options for people with bad credit. These retailers have made buying a car much easier and more convenient by providing a platform for customers to search for and purchase vehicles, as well as to secure financing.

Since they work with various lenders, they may offer financing options for those with poor credit scores. However, their loan terms and rates may not be as competitive as other options.

Auto Dealerships

Auto dealerships, particularly those that offer in-house financing, are another option for individuals with bad credit.

Dealerships may offer in-house financing, also called "buy here, pay here," which means the dealership serves as the direct lender and provides the auto loan. This option may be appealing to individuals with bad credit who have difficulty securing financing elsewhere, but it frequently comes with less favorable terms and higher interest rates.

Four Best Auto Loan Options for Bad Credit

Capital One: Best Overall for Bad Credit Auto Loans

Capital One is a well-known financial institution that offers various financial products, including credit cards, checking and savings accounts, and auto loans. They provide a range of auto loan options, including financing for individuals with bad credit.

Capital One Auto Loan Details

• Loan Terms: 36 to 72 months
• Starting APR: 5.79%
• Loan Amounts: $4,000 to $75,000
• Fees: No application or prepayment fees
• Time to Receive Funds: Typically within 7 to 10 business days

Qualification Requirements

• Minimum credit score: Not specified, but typically accommodates lower credit scores
• Minimum income: $1,500 per month from a single source

Pros:

• Obtaining prequalification without impacting the credit score
• Wide network of participating dealers
• Competitive rates and terms for those with bad credit

Cons:

• May require a minimum loan amount
• Excludes private party sales and lease buyouts.

OpenRoad Lending: Best for Bad-Credit Auto Refinance

OpenRoad Lending is an online lender specializing in auto loan refinancing. They cater to individuals with various credit profiles, including those with bad credit, and aim to help borrowers lower their monthly payments and interest rates.

OpenRoad Lending Auto Loan Details

• Starting APR: 4.29%
• Loan Terms: 36 to 84 months
• Loan Amounts: $10,000 to $100,000
• Fees: Varies depending on the state
• Time to Receive Funds: Typically within 1 to 2 weeks
• Maximum vehicle age: 10 years
• Maximum vehicle mileage: 140,000 miles

Qualification Requirements

• Minimum credit score: 500
• Minimum income: $1,500 per month

Pros:

• Specializes in auto loan refinancing
• Accepts borrowers with low credit scores
• Prequalification is available without affecting credit score

Cons:

• May charge fees depending on the state
• Only provides auto loan refinancing, not new loans.

New Roads: Best for Preapprovals

New Roads is an online lender that offers auto loans to individuals with poor credit. They stand out for their preapproval process, which can provide borrowers with a clear understanding of their budget before shopping for a vehicle.

New Roads Auto Loan Details

• Starting APR: 11.00%
• Loan Terms: Up to 72 months
• Loan Amounts: $5,000 to $45,000
• Fees: No application or prepayment fees
• Time to Receive Funds: Typically within 1 to 3 business days

Qualification Requirements

• Minimum credit score: None specified, but typically accommodates lower credit scores
• Minimum income: $1,800 per month from a single source

Pros:

• The pre-approval process provides clarity on budget and loan terms
• No application or prepayment fees
• Collaborates with a broad range of dealerships

Cons:

• Limited loan amount range
• Not available for private party sales or lease buyouts

Carvana: Best for Completely Online Car Buying

Carvana is an online car retailer that offers a fully online car buying experience, including financing options for individuals with bad credit. They have a large inventory of vehicles and provide a seamless process from browsing to delivery.

Carvana Auto Loan Details

• Starting APR: 6.85%
• Loan Terms: 36 to 72 months
• Loan Amounts: Based on the vehicle price and borrower's qualifications
• Fees: No application or prepayment fees
• Time to Receive Funds: Not applicable, as financing is directly integrated into the car purchase process

Qualification Requirements

• Minimum credit score: None specified, but typically accommodates lower credit scores
• Minimum income: Not specified, but will consider the borrower's debt-to-income ratio

Pros:

• 7-day return policy on purchased vehicles
• Allows for a fully online car buying experience.
• Provides financing options for individuals with poor credit.

Cons:

• Not available for private party sales or lease buyouts
• Only allows purchasing from Carvana's inventory

Tricks to Increase Your Chances of Getting Approved for Bad Credit Auto Loans

Find a Cosigner

If you have bad credit, a cosigner with good credit can boost your chances of getting approved for an auto loan. This is because the cosigner agrees to take on the responsibility of the loan if you can't make payments.

Lenders see the cosigner as a safety net and are more likely to approve your loan. However, it's important to have a frank discussion with your cosigner about the risks and responsibilities involved in cosigning a loan.

Make a Large Down Payment

A large down payment reduces the amount you need to borrow, which makes lenders more likely to approve your loan. Additionally, it demonstrates to lenders that you are serious about the purchase and have the financial discipline to save money. Aim for a down payment of at least 20% of the car's value.

Reduce Existing Debt

Lowering your debt-to-income ratio can make you a more attractive candidate for an auto loan. Try to pay off as much existing debt as possible, such as credit card balances, personal loans, or other lines of credit, before applying for an auto loan.

Check Your Credit Report

To increase your chances of approval for an auto loan, it's important to review your credit report for any errors or discrepancies that may be lowering your credit score and dispute them immediately.

This can help to improve your credit score and increase your likelihood of getting approved for an auto loan. You are entitled to one free copy of your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) annually.

Consider Buying a Car with Cash

Purchasing a used car with cash can be a smart option if it fits within your budget. This way, you can avoid the potential drawbacks of bad credit auto loans, such as high-interest rates and unfavorable terms.

Buy from a Private Seller, Not a Dealer

Purchasing a vehicle from a private seller can be a smart move if you're looking for a budget-friendly option and wish to minimize your borrowing. This is because private sellers often have lower operating expenses, allowing them to offer more competitive prices, and may also be open to bargaining.

Use a Personal Loan

A personal loan can be a better alternative to a bad credit auto loan. Personal loans often have more lenient terms and lower interest rates, making them a better financial choice. Before taking out a personal loan, compare the offers from different lenders to find the one that best suits your needs.

FAQs:

How do you buy a car with bad credit and no co-signer?

To buy a car with bad credit and no co-signer, try the following strategies:

• Save up for a larger down payment to reduce the amount you need to borrow.
• Improve your credit score by paying off existing debts and checking your credit report for errors.
• Shop around and compare loan offers from different lenders, including credit unions, online lenders, and subprime lenders.
• Consider buying a used car or a lower-priced vehicle to minimize the loan amount.
• Negotiate with the seller or dealership to secure a better price and loan terms.

What's the lowest credit score you have to finance a car?

There is no set minimum credit score for financing a car, as lenders have different requirements and risk tolerances. However, borrowers with credit scores below 600 are generally considered to have bad credit and may face higher interest rates and less favorable loan terms.

Some subprime lenders may work with borrowers with credit scores as low as 500, but it's always best to improve your credit score before applying for a loan.

Is it better to get an auto loan from your bank or the dealership?

Both banks and dealerships have their own advantages and disadvantages when it comes to car loans.

Banks offer lower interest rates and a simpler loan application process, while dealerships may offer more flexibility and special financing promotions. It's recommended to get pre-approved from a bank and compare it with dealership financing options to find the best deal for you.

What is the best time of the year to buy a car?

The best time to buy a car is typically at the end of the year, between October and December. During this period, dealerships often offer sales and incentives to meet their annual sales targets and clear out inventory for the new model year.

Other good times to buy a car include the end of the month, when salespeople are trying to meet their monthly quotas, and holiday weekends when dealerships often have special promotions.

What to consider when refinancing your car with bad credit:

• Your current credit score: Start by working to improve your credit score. Take steps to address any negative factors on your credit report, such as paying down outstanding debts and correcting errors before applying for refinancing.

• Interest rates: Research various lenders and compare their interest rates to determine if refinancing would result in a lower interest rate than your current loan.

• Loan term: Consider the loan term options available, as longer terms may lower monthly payments but could ultimately result in higher overall costs due to increased interest.

• Prepayment penalties: Check if your current loan has any prepayment penalties. These fees could offset any potential savings from refinancing.

• Closing costs and fees: Evaluate the closing costs and fees associated with refinancing. Ensure that the savings from the lower interest rate exceed these expenses.