Before you hit the car lots, it’s a good idea to have a solid plan in place for financing. If you have bad credit, you’ll probably find that your options are somewhat limited.
Many dealerships won’t work with you if your credit score is below a certain threshold. If you’re concerned about your score, it’s worth taking a look at lenders willing to finance a car loan for people with bad credit.
The good news is there are plenty of online lenders and loan aggregate sites that offer auto loans to people with bad credit. Here’s a list of our top picks.
#1. Auto Credit Express
If you have bad credit or a lack of credit history, Auto Credit Express might be able to connect you with a lender that can help. While you don’t need a specific credit score to qualify, you must earn a minimum of $1,500 a month to apply.
Auto Credit Express has been in business since 1999 and has an “excellent” average review rating from over 1,400 reviewers on Trustpilot.
As an online marketplace for auto financing, car.Loan.com can match you up with dealers and lenders near you. Because the site is a lender network rather than a finance company, it doesn’t set any restrictions on financial requirements for its borrowers.
To apply, you simply fill out the site’s online form. From there, car.Loan.com will return a list of lenders willing to work with you based on the information you provide.
Like the other companies on this list, myAutoloan.com is an aggregate site for car loans. Using the site’s online application, you can compare offers from up to four lenders at a time.
The site has an average “great” rating from over 500 reviews on Trustpilot, as well as an A+ rating from the Better Business Bureau.
#4. Cars Direct
If you make at least $500 a week, you can apply for an auto loan through Cars Direct, which specializes in pairing borrowers with lenders who offer car loans to people with low credit scores. The site doesn’t require a certain credit score, but its various lender partners might.
According to Cars Direct, its online application form takes just 60 seconds to fill out. After you submit your information, the site will connect you with possible lenders.
If you’re willing to select a vehicle from Carvana’s inventory of used vehicles, you might be able to finance through them, as well. The site doesn’t have any specific credit requirements, although borrowers must make at least $10,000 per year.
Carvana also completely eliminates the dealership, which makes it a good option if you dread the bargaining process involved in buying a car.
Once you choose your vehicle, you can either have it delivered or pick it up from one of Carvana’s car vending machines — all without ever stepping onto a car lot.
Carvana only offers used cars, but each vehicle on its site goes through a Carvana certification process. Its cars are also backed by a bumper-to-bumper warranty, so you can shop with peace of mind.
#6. Capital One
Most people are familiar with Capital One as a bank and credit card company, but you might not realize it offers auto loans for borrowers with bad credit. If your credit score is at least 500, you can apply for a loan.
- Vehicle can’t be more than 10 years old
- Vehicle can’t have over 120,000 miles
Capital One also offers pre-qualification, so you can see if you qualify for a car loan without risking any damage to your credit score.
#7. Lending Tree
Unlike the other companies listed here, Lending Tree doesn’t necessarily cater to borrowers with bad credit. However, its partnerships with a vast network of lenders means even those with poor credit can usually find a match.
You won’t pay a markup on any loan offer you receive through Lending Tree. Just fill out the site’s application and get up to five car loan offers at a time to compare.
How having bad credit can impact your car loan
Whether you’re in the market for a new or used car, the reality is that most vehicle purchases will set you back several thousand dollars. With the average price of a new car coming in at $37,000, few people can afford to pay out of pocket for a vehicle. This means getting a car loan.
If you have bad credit, you can expect to pay more for your car. While the sticker price won’t change, your loan’s interest rate will almost certainly be higher than someone with good credit. This means you’ll end up paying more for your car over time compared to someone with a better score.
Here’s a look at how your credit score determines how much you can expect to pay for a new car with a price tag of $20,000, financed over 60 months with no trade-in. Keep in mind that interest rates will vary depending on your score.
This chart also doesn’t account for additional expenses, such as sales tax, title costs, and other fees. Unless you live in New Hampshire, you’ll also need to pay for auto insurance before you can legally drive.
|Credit Score||Interest Rate||Monthly Payment||Interest||Total Cost of the Loan|
As you can see, the difference between a credit score of 500 versus 800 can add up when it comes to vehicle financing. Someone with a low score can easily end up paying over $5,000 more over the life of their auto loan compared to someone with excellent credit.
A low credit score can hurt you in another way, too. In addition to higher interest rates, you might have trouble finding a lender willing to offer enough financing to cover the cost of your desired vehicle. This can narrow the types of cars available to you.
Terms to know before you apply for an auto loan
Before you shop for a car loan, it’s a good idea to get acquainted with car loan terminology. This will help you avoid getting blindsided by unfamiliar lingo as you search.
- Loan term – The loan term is the length of the loan. You’ll typically see this expressed in months, such as a 48-month term or a 60-month term. Generally, a longer term means a lower monthly payment, since you spread the payments over a longer period of time. However, longer loan terms aren’t always the best option. In most cases, the longer the term the higher the interest rate. You might pay a lower monthly payment, but you’ll end up paying more in interest. This is why it’s important to run the numbers and use an auto loan calculator before agreeing to a loan.
- Interest rates – This is the interest rate you pay on the money you borrow to purchase the car. Typically, you’ll see the interest rate as an annual percentage rate (APR). The higher your credit score, the lower your APR will be.
- Rate shopping – As the name suggests, rate shopping means shopping around for the best interest rate on a car loan — or any other kind of loan, such as a mortgage. While it’s smart to search for the very best rate, remember that applying for a car loan usually means lenders will make a hard inquiry on your credit report. Because multiple hard inquiries within a short period of time can hurt your score, it’s important to avoid racking up too many.
- Soft vs. hard credit pull – A soft pull on your credit report won’t hurt your credit score, whereas a hard pull will. It’s not always easy to tell if a credit application will trigger a soft or hard inquiry. Some lenders will tell you upfront, so it’s always a good idea to ask. You can also minimize the damage of a hard pull by getting pre-qualified for a car loan. In most cases, a pre-qualification process counts as a soft pull, which won’t impact your credit score. Once you’re pre-qualified, you can narrow down your financing options and only proceed with lenders who offer the best rates.
How much down payment should you make?
As a general rule of thumb, you should aim to put down at least 20 percent of your car’s purchase price. This will keep your monthly car payments within a manageable range that fits your budget.
Making a larger down payment can also help you snag better loan terms, since putting down more will likely open up a larger pool of lenders willing to work with you. The more money you put down, the less risk the lender takes on. As a result, they’re more likely to offer you a lower interest rate. This will save you money over the life of your loan.
If you can’t afford to put down 20 percent, try to put down as much as you can. In some cases, it’s a good idea to delay buying a new car while you save up for a down payment.
Should you use a co-signer?
If a low credit score is holding you back from getting a car loan, you can try asking someone to act as a co-signer on your loan. This reduces the risk to the lender, which can make them more likely to offer you financing.
By using a co-signer, you give the lender two people to count on to make the monthly payments on your loan. At the same time, co-signing on a car loan is a potentially risky proposition for the co-signer.
If you stop paying, the lender will go after your co-signer for payment. This is why it’s important to make sure you can truly afford a new car before you ask someone to sign on.
If you default on your car loan, it can have a negative impact on your co-signer’s credit score. It also leaves them on the hook for your car payment. It goes without saying that this situation can create a sizeable rift in any relationship.
Shopping for a new car can be a hassle. If you have bad credit, it can quickly become a nightmare. If you’re patient and willing to do your homework, however, you can find reputable lenders willing to offer car loans to borrowers with bad credit.