How to Get a Car Loan with Bad Credit

Getting a car loan can be challenging—especially if your credit score is low. Whether it’s due to past financial mistakes, missed payments, or high debt levels, having bad credit doesn’t mean you can’t finance a car. It just means you’ll need to approach the process differently and be better prepared.

In this comprehensive guide, we’ll explain how to get a car loan with bad credit in 2025, offer practical tips to improve your chances, and help you avoid predatory lenders. With the right information and strategy, you can still drive away in the vehicle you need.

What is Considered Bad Credit?

Credit scores range from 300 to 850, and most lenders use your score to assess the risk of lending you money. Here’s how credit scores are typically categorized:

Credit Score Range	Rating
750–850	Excellent
700–749	Good
650–699	Fair
550–649	Poor
300–549	Very Poor

If your credit score is below 600, lenders may consider you a high-risk borrower. This can lead to higher interest rates, larger down payment requirements, or loan denial. However, many lenders still offer subprime auto loans designed for people with low credit scores.

Can You Get a Car Loan with Bad Credit?

Yes, you absolutely can. Many people with bad credit successfully finance cars every year. The key is to:

Know where you stand financially
Find the right lenders
Strengthen your loan application
Avoid common pitfalls

The process may take extra time and effort, but it’s entirely possible.

Steps to Get a Car Loan with Bad Credit

Here’s a step-by-step guide to help you secure a car loan—even with a low credit score.

1. Check Your Credit Report and Score

Before applying, request your free credit report from Equifax, Experian, or TransUnion via AnnualCreditReport.com. Check for:

Errors or inaccuracies
Late payments
Accounts in collections

Disputing incorrect information can improve your score quickly. Knowing your credit score also helps you identify lenders willing to work with your situation.

2. Set a Realistic Budget

People with bad credit often face higher interest rates, which can significantly affect your monthly payments. Use an online auto loan calculator to determine what you can realistically afford, including:

Monthly payment
Down payment
Interest rate
Loan term
Total loan cost

Don’t forget to factor in additional costs such as insurance, taxes, registration, and maintenance.

3. Save for a Down Payment

A down payment can be a game-changer when applying with bad credit. The larger your down payment, the less you need to borrow—and the more favorable your loan terms will be.

Benefits of a larger down payment:

Increases approval chances
Lowers monthly payments
Reduces lender risk
May help you qualify for better rates

Aim for at least 10%–20% of the vehicle’s price if possible.

4. Shop Around for Lenders

Not all lenders treat bad credit the same way. Some specialize in subprime lending, while others may only approve applicants with higher scores. Consider the following options:

a. Credit Unions

Credit unions often offer lower rates and more flexible criteria than banks, even for members with less-than-perfect credit.

b. Online Lenders

Digital platforms like Capital One Auto Navigator or Carvana cater to a wide range of credit scores and provide instant prequalification.

c. Dealerships with Special Financing

Some dealerships partner with lenders that offer buy here, pay here or second-chance financing. Be cautious—some charge very high interest rates.

d. Bad Credit Auto Loan Companies

These companies specialize in helping borrowers with low credit. Make sure they are reputable and don’t hide fees or use predatory practices.

5. Get Pre-Approved

A pre-approval letter helps you:

Know your loan terms in advance
Set a realistic vehicle budget
Strengthen your negotiating position
Avoid dealership markups or unnecessary extras

Pre-approval also reduces the number of hard credit inquiries, which can temporarily lower your score.

6. Choose a Reliable, Affordable Car

With bad credit, it’s wise to choose a reliable used car that fits within your budget. You don’t need a luxury vehicle—you need affordable transportation that won’t strain your finances.

Look for:

Low-mileage used vehicles
Certified Pre-Owned (CPO) cars
Strong reliability ratings (check Consumer Reports or Kelley Blue Book)

Avoid luxury brands, high-mileage vehicles, or cars with poor maintenance history.

7. Add a Co-Signer (If Possible)

If a family member or friend has good credit, they can co-sign your loan. This gives the lender more confidence, often resulting in:

Lower interest rates
Higher loan approval odds
More favorable terms

Important: If you miss payments, the co-signer is legally responsible for repaying the loan.

8. Read the Loan Terms Carefully

Before signing anything, review the full loan agreement, including:

Interest rate (APR)
Loan term (number of months)
Monthly payment
Fees and penalties
Early payoff options

Watch out for balloon payments, hidden fees, or prepayment penalties, which can make the loan more expensive.

What Interest Rates to Expect with Bad Credit (2025 Estimates)

Interest rates vary by lender and credit score. Here's a rough estimate for 2025:

Credit Score Range	New Car APR	Used Car APR
781–850 (Excellent)	3.9%	4.5%
661–780 (Good)	5.2%	6.7%
601–660 (Fair)	8.0%	10.1%
501–600 (Poor)	12.9%	16.3%
Below 500 (Very Poor)	15.9%–20%+	20%–25%+

With bad credit, expect to pay more in interest. However, with a solid down payment and the right lender, you can minimize the impact.

Tips to Improve Your Credit Before Applying

If you’re not in a rush to buy a car, take time to boost your credit score first. Even a small improvement can save you thousands over the life of the loan.

Pay down existing debt: Lower credit utilization improves your score.
Make on-time payments: Payment history is 35% of your credit score.
Avoid opening new accounts: Too many inquiries can hurt your score.
Dispute errors: Fixing mistakes on your credit report can give a quick boost.
Become an authorized user: Being added to someone else’s good credit card account can help.

Avoid These Common Mistakes

Accepting the First Offer
Shop around and compare multiple offers. Predatory lenders often prey on desperation.
Focusing Only on Monthly Payments
A low monthly payment can mean a longer loan term—and more total interest paid.
Skipping the Pre-Approval
Pre-approval saves time, protects your credit score, and sets realistic expectations.
Buying More Car Than You Need
Stick to your budget. Overextending can lead to missed payments and repossession.
Ignoring Total Loan Cost
Always calculate how much you’ll pay in interest over time—not just monthly installments.

Frequently Asked Questions (FAQs)

Q1: Can I get a car loan with a 500 credit score?

Yes, but expect higher interest rates and stricter terms. A larger down payment or co-signer can help.

Q2: Will shopping around hurt my credit?

No, if done within a 14–45 day window. Multiple inquiries for auto loans within that time frame count as one inquiry.

Q3: How much should I borrow with bad credit?

Borrow only what you need. Smaller loan amounts are easier to repay and have a higher chance of approval.

Q4: Can I refinance later?

Yes. If your credit improves, refinancing can lower your interest rate and monthly payment.

Final Thoughts

Getting a car loan with bad credit in 2025 is not impossible—it just requires more preparation and careful decision-making. Focus on:

Knowing your credit status
Saving for a down payment
Comparing multiple loan offers
Choosing an affordable, reliable vehicle

Don’t let a poor credit score define your financial future. With discipline and the right steps, you can rebuild your credit while securing the transportation you need today.