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You can get a car with bad credit by working with subprime lenders, credit unions, buy here pay here dealerships, or by using a cosigner to strengthen your application. Expect higher interest rates—subprime borrowers (501-600 credit score) currently pay 13-19% APR versus 6-7% for prime borrowers[1]. A larger down payment (10-20% of the vehicle price) significantly improves approval odds and can lower your rate[2]. Bad credit doesn’t mean no car—it means more legwork and higher costs, but financing is absolutely possible.
Understanding Bad Credit for Auto Loans
Credit scores below 600 fall into subprime territory for auto lending[3]. Here’s how lenders typically classify borrowers:
| Credit Score Range | Category | Typical New Car APR | Typical Used Car APR |
|---|---|---|---|
| 781-850 | Super prime | 5.25% | 7.13% |
| 661-780 | Prime | 6.87% | 9.36% |
| 601-660 | Near prime | 9.83% | 13.92% |
| 501-600 | Subprime | 13.18% | 18.86% |
| 300-500 | Deep subprime | 15.77% | 21.55% |
Source: Experian Q2 2024 data[1]
The rate difference is substantial. A subprime borrower financing a $25,000 used car at 18.86% pays roughly $536/month over 66 months—compared to $518/month for a prime borrower at 9.36%[1]. That seemingly small monthly gap adds up to thousands over the loan’s life.
Financing Options for Bad Credit Buyers
Subprime Auto Lenders
Several mainstream lenders specialize in or accept subprime borrowers[3][4]:
- Capital One Auto Finance: Offers prequalification without hard credit inquiry
- Carvana: Works with various credit profiles for online car buying
- CarMax: Partners with multiple lenders to find financing options
- Dealership financing networks: Many dealers work with 20-30+ lenders
The advantage of these lenders? They report to credit bureaus. Every on-time payment helps rebuild your score, potentially qualifying you to refinance at a better rate later.
Credit Unions
Credit unions often outperform banks for bad credit auto loans because they’re member-owned nonprofits rather than profit-driven institutions[5][6].
Benefits include:
- More flexible approval criteria that look beyond just your score
- Potentially lower interest rates than traditional banks
- Personalized service with loan officers who understand your situation
- Prequalification options that won’t ding your credit
The catch? You typically need to become a member before applying. Many credit unions have simple membership requirements—living in a certain area or working for specific employers. Some have open membership to anyone who joins with a small deposit.
If you’re considering multiple financing options, understanding whether you need good credit to lease a car helps you compare leasing versus buying.
Buy Here Pay Here Dealerships
Buy here pay here (BHPH) lots finance vehicles directly without involving outside lenders[7]. They exist specifically for buyers who can’t get approved anywhere else.
| Pros | Cons |
|---|---|
| Approval for almost any credit situation | Higher interest rates (often 15-25%+) |
| Fast, same-day financing | Limited vehicle selection |
| No third-party approval needed | May not report to credit bureaus |
| Flexible payment schedules | Older, higher-mileage vehicles |
The biggest risk with BHPH? Many don’t report your payments to credit bureaus, so you won’t rebuild credit even with perfect payments[8]. Always ask upfront whether they report to Equifax, Experian, and TransUnion. If they don’t, you’re paying high interest with no credit-building benefit.
Manufacturer Special Programs
Some automakers offer programs specifically for credit-challenged buyers[3]. These programs often have restrictions—specific models only, shorter terms, or higher rates—but they provide another path to approval.
Check with:
- Ford Credit
- GM Financial
- Toyota Financial Services
- Honda Financial Services
Manufacturer programs typically do report to credit bureaus, making them preferable to non-reporting BHPH lots if you qualify.
Strategies to Improve Your Approval Chances
Save a Larger Down Payment
Most subprime lenders require 10-20% down, or at least $1,000—whichever is greater[2].
A bigger down payment helps in multiple ways:
- Reduces the loan amount, lowering lender risk
- May qualify you for a better interest rate
- Builds immediate equity, reducing the risk of being “underwater”
- Shows lenders you’re financially committed
If you’re buying a $15,000 car with bad credit, expect to need $1,500-3,000 upfront. For a $25,000 vehicle, that jumps to $2,500-5,000.
Get a Cosigner
A cosigner with good credit can dramatically improve your terms[9][10].
When you add a cosigner, lenders consider both credit profiles. If your cosigner has a 720 score while yours sits at 550, you might qualify for near-prime rates instead of deep subprime. That could mean 10% APR instead of 20%—saving thousands over the loan term.
But cosigning is serious business. If you default, your cosigner’s credit takes the hit, and they become legally responsible for the debt. Only ask someone who trusts you and understands the risk.
Check Your Credit Report First
Before applying anywhere, pull your credit reports from all three bureaus[3]. Look for:
- Errors that could be dragging down your score
- Accounts in collections you didn’t know about
- Incorrect late payments
- Fraudulent accounts
Disputing errors can take 30-45 days but might boost your score enough to move from deep subprime to subprime—or subprime to near prime. Even a 30-point improvement changes your rate significantly.
Prequalify with Multiple Lenders
Prequalification lets you see potential rates and terms without a hard credit inquiry[3][4]. Soft inquiries don’t affect your score, so you can shop around freely.
Once you narrow down your options, submit full applications within a 14-day window. Credit bureaus treat multiple auto loan inquiries in a short period as a single inquiry, minimizing the impact on your score.
Consider a Less Expensive Vehicle
Lenders approve loans more readily when the requested amount is lower[6]. A $12,000 used car is easier to finance with bad credit than a $30,000 new one.
Buying a reliable used vehicle now, making payments on time for 12-24 months, and refinancing or trading up once your credit improves is often smarter than stretching for something expensive with terrible terms.
What to Expect During the Process
Documentation You’ll Need
Prepare these items before visiting dealers or applying online:
- Proof of income (recent pay stubs, tax returns)
- Proof of residence (utility bills, lease agreement)
- Valid driver’s license
- References (some subprime lenders require personal or professional references)
- Proof of insurance
- Down payment
Subprime lenders often require more documentation than prime lenders because they’re taking on more risk.
The Loan Terms
Bad credit loans typically come with[1]:
- Higher interest rates (13-22% depending on credit tier)
- Longer loan terms (60-72 months common for used cars)
- Lower loan amounts approved
- Stricter vehicle requirements (age, mileage limits)
Some lenders won’t finance vehicles over 100,000 miles or more than 10 years old. This limits your options but also protects you from buying a money pit.
How Long Until You Can Refinance?
Make 12-24 months of on-time payments and your credit score will likely improve enough to refinance at a better rate[8]. Some buyers treat their initial high-rate loan as temporary—a bridge to better terms once they’ve proven reliability.
If you’re building credit from scratch, knowing how many miles is good for a used car helps you choose a vehicle that will last through your credit rebuilding period.
Common Mistakes to Avoid
Focusing Only on Monthly Payment
Dealers love to negotiate monthly payments rather than total loan cost. A lower payment often means a longer term, which means more interest paid overall[3].
Example: A $20,000 loan at 15% APR:
- 48 months: $556/month, $6,696 total interest
- 72 months: $416/month, $9,970 total interest
The 72-month option looks easier monthly but costs $3,274 more in interest.
Skipping the Preapproval Step
Walking into a dealership without preapproval puts you at a disadvantage[3]. The dealer controls the narrative and may push you toward their highest-margin financing option.
Get preapproved from a bank, credit union, or online lender first. You’ll know exactly what you qualify for and can compare dealer financing against your existing offer.
Ignoring Total Cost of Ownership
A cheap car with expensive insurance, poor fuel economy, and constant repairs might cost more than a slightly pricier reliable vehicle. Consider:
- Insurance costs (lenders require full coverage on financed cars)
- Fuel efficiency
- Expected maintenance and repair frequency
- Depreciation
Accepting the First Offer
Your first approval isn’t necessarily your best option. Shop around—even with bad credit, rates vary significantly between lenders[4].
Key Takeaways
- Subprime borrowers (501-600 credit score) pay 13-19% APR versus 5-7% for prime borrowers—expect to pay significantly more for financing until you rebuild credit[1]
- Credit unions often offer better terms than banks for bad credit borrowers because they’re member-focused nonprofits with more flexible approval criteria[5]
- Plan for 10-20% down payment or $1,000 minimum—larger down payments improve approval odds and may lower your interest rate[2]
- A cosigner with good credit can dramatically reduce your rate, potentially saving thousands over the loan term, but they’re legally responsible if you default[9]
- Avoid buy here pay here lots that don’t report to credit bureaus—you’ll pay high interest with zero credit-building benefit[8]
- Prequalify with multiple lenders before visiting dealerships to know your options and avoid being pushed into unfavorable dealer financing[3]
FAQs
What credit score do I need to get a car loan?
There’s no universal minimum, but most mainstream lenders prefer scores above 500[1]. Scores below 600 are considered subprime and will result in higher rates. Buy here pay here dealerships may approve borrowers regardless of score since they finance in-house, though at significantly higher costs. Your best bet is prequalifying with multiple lenders to see where you stand.
How much down payment do I need with bad credit?
Most subprime lenders require 10-20% of the vehicle price, or a minimum of $1,000—whichever is greater[2]. For a $15,000 car, expect to need $1,500-3,000 down. Larger down payments improve approval odds and may secure better interest rates. If you can save more than the minimum, it’s usually worth doing.
Will getting a car loan help rebuild my credit?
Yes—if your lender reports to credit bureaus[8]. Most banks, credit unions, and major auto lenders report your payment history to Equifax, Experian, and TransUnion. On-time payments gradually improve your score. But some buy here pay here dealerships don’t report payments, meaning you get no credit benefit despite paying high interest. Always confirm reporting practices before signing.
Is it better to use a cosigner or pay a bigger down payment?
Both help, but they work differently[9][2]. A cosigner can dramatically lower your interest rate if they have good credit—potentially saving thousands over the loan term. A larger down payment reduces the loan amount and proves financial commitment but won’t change your rate as much. If you have access to both, combining them gives you the strongest application.
Can I buy a new car with bad credit?
Technically yes, but it’s often not the wisest choice[1]. You’ll pay higher interest on a larger loan amount, and new cars depreciate rapidly. A reliable used car costs less, requires a smaller loan, and gets you through the credit-rebuilding period. Once your score improves in 12-24 months, you can refinance or trade up to something newer with better terms.
References
- Experian. (2024). Subprime Auto Loan: Guide & Rates. https://www.experian.com/blogs/ask-experian/subprime-auto-loan/
- Jennings Volkswagen. (2025). How Much Down Payment for a Car with Bad Credit? https://www.jennings-vw.com/car-buying-tips/how-much-down-payment-for-a-car-with-bad-credit
- Bankrate. (2025). How To Get A Car Loan With Bad Credit. https://www.bankrate.com/loans/auto-loans/car-loan-with-bad-credit/
-
Credit Karma. (2025). 7 Car Loans for Bad Credit in 2026.
7 car loans for bad credit in 2026
- Camino FCU. (2024). Why Credit Unions Outshine Banks for Poor Credit Auto Loans. https://www.caminofcu.org/why-credit-unions-outshine-banks-for-poor-credit-auto-loans/
-
Northwoods Credit Union. (2025). Applying For An Auto Loan With Bad Credit: Steps To Follow.
Applying For An Auto Loan With Bad Credit: Steps To Follow
- Consumer Financial Protection Bureau. (2024). What is a “No Credit Check” or “Buy Here, Pay Here” Auto Loan? https://www.consumerfinance.gov/ask-cfpb/what-is-a-no-credit-check-or-buy-here-pay-here-auto-loan-or-dealership-en-887/
- Truliant Federal Credit Union. (2025). Can You Get An Auto Loan With Bad Credit. https://www.truliantfcu.org/borrow/auto-loans/can-you-get-an-auto-loan-with-bad-credit
- Experian. (2025). Pros and Cons of a Cosigner on a Car Loan. https://www.experian.com/blogs/ask-experian/should-you-get-a-cosigner-on-a-car-loan/
- Bankrate. (2025). Pros and Cons of Having a Co-Signer for a Car. https://www.bankrate.com/loans/auto-loans/pros-and-cons-of-having-a-co-signer-for-a-car/
I am a senior automotive analyst at Autvex. Expert vehicle evaluations, in-depth reviews, and objective analysis helping readers make informed automotive decisions with years of industry experience.
