How to Get a Car with Bad Credit History?

Buying a car with bad credit is absolutely possible—millions of Americans do it each year^[1]. Key strategies include saving a larger down payment (10-20% of vehicle price), getting pre-approved from multiple lenders, considering a co-signer, and targeting used vehicles to reduce loan amounts^[2]. Expect interest rates between 11% and 21% depending on your exact credit score, compared to 5-7% for prime borrowers^[3].

Understanding Bad Credit Auto Loans

Bad credit auto financing, often called subprime lending, serves borrowers whose credit scores fall below conventional approval thresholds^[4]. While definitions vary by lender, subprime generally means credit scores between 501 and 600, with “deep subprime” covering scores from 300 to 500^[3].

The subprime auto loan market is substantial and growing. Lenders recognize that credit challenges come from many circumstances—job loss, medical emergencies, divorce, or simply limited credit history^[1]. Many dealerships maintain relationships with subprime lenders specifically to serve this market segment.

The trade-off for approval with bad credit is cost. Subprime borrowers pay significantly higher interest rates and may face stricter terms including larger down payments, shorter loan terms, and vehicle restrictions^[4]. Understanding these costs upfront helps you make informed decisions about whether to buy now or wait while rebuilding credit. When evaluating vehicles, considering how many miles are acceptable on a used car becomes especially important for budget-conscious buyers.

Current Interest Rates by Credit Score

Credit Score Range	Category	New Car APR	Used Car APR
781–850	Super Prime	5.25%	7.13%[3]
661–780	Prime	6.87%	9.36%[3]
601–660	Near Prime	9.83%	13.92%[3]
501–600	Subprime	13.18%	18.86%[3]
300–500	Deep Subprime	15.77%	21.55%[3]

Source: Experian data, Q2 2024

These rates translate to substantial cost differences. A $25,000 used car loan at 18.86% APR over 60 months costs approximately $14,500 in interest—compared to about $6,500 at 9.36% APR^[3]. This reality makes improving your position before buying or reducing the loan amount critical strategies.

Steps to Secure Financing with Bad Credit

Step 1: Know Your Credit Score

Before visiting any dealership, obtain your credit report from all three bureaus^[2]. Free reports are available at AnnualCreditReport.com. Review for errors that might be dragging down your score—incorrect late payments, accounts that aren’t yours, or outdated negative information.

Disputing errors can sometimes improve scores within 30 to 45 days^[2]. Even small improvements matter when you’re near category cutoffs—moving from 595 to 605 could shift you from subprime to near-prime rates.

Step 2: Calculate Your Budget

Determine what monthly payment you can realistically afford before shopping^[5]. Include not just the loan payment but insurance, fuel, and maintenance costs. Many financial advisors suggest keeping total transportation costs below 15-20% of gross income.

Use online loan calculators to see how different loan amounts, terms, and interest rates affect monthly payments^[5]. Be realistic about what subprime rates mean for your budget.

Step 3: Save for a Larger Down Payment

A substantial down payment is the single most effective tool for bad credit buyers^[2]. While prime borrowers might put down 5-10%, subprime lenders typically require 10-20% minimum^[6].

Benefits of a larger down payment:

• Reduces amount financed, lowering monthly payments
• Decreases lender risk, potentially improving rates
• Demonstrates financial commitment and responsibility
• Builds immediate equity, reducing risk of being underwater

Even a few hundred extra dollars toward your down payment can make a meaningful difference^[5]. Consider delaying your purchase to save more if possible.

Step 4: Get Pre-Approved Before Shopping

Apply for pre-approval from multiple lenders before visiting dealerships^[2]. This accomplishes several goals:

• You know exactly what rates and terms you qualify for
• You gain negotiating leverage at dealerships
• Multiple applications within 14-45 days count as a single credit inquiry^[2]

Lender types to consider:

• Credit unions (often more flexible with members)
• Online lenders specializing in subprime
• Banks where you have existing relationships
• Captive lenders (manufacturer financing)

Some lenders like CarMax have no minimum credit score requirement, while others require scores of 580 or higher^[7]. Compare offers carefully, looking at both APR and total cost.

Step 5: Consider a Co-Signer

Adding a co-signer with good credit can significantly improve approval odds and interest rates^[8]. The co-signer shares legal responsibility for the loan, so their creditworthiness helps offset your risk profile.

Understand that co-signing carries serious implications for the co-signer—late payments affect their credit, and they’re fully liable if you default^[8]. Maintain open communication and never miss payments if someone helps you this way.

Step 6: Choose the Right Vehicle

Targeting the right vehicle matters for approval and affordability^[1]:

• Consider used vehicles – Lower purchase prices mean smaller loans and lower payments
• Check vehicle restrictions – Some lenders limit financing to cars under 10 years old with fewer than 150,000 miles^[7]
• Focus on reliability – Avoid repair costs that strain your budget and ability to make payments
• Skip extras – Focus on basic transportation rather than luxury features

If you’re considering specific brands, understanding concerns like Honda Accord years to avoid helps you choose reliable used options.

Warning Signs and Predatory Practices

Bad credit buyers must watch for predatory lending practices^[4]:

• “Buy here, pay here” lots – Often charge rates exceeding 25% with aggressive repossession practices
• Yo-yo financing – Dealer calls days later claiming financing fell through, demanding worse terms
• Excessive fees – Documentation fees, dealer add-ons, and unnecessary products inflating the deal
• Payment packing – Adding warranties or insurance without clear disclosure
• Pressure tactics – Rushing you to sign before reading the contract

Always read every document before signing. If something seems unclear or wrong, walk away^[4]. You have time to find a better deal.

Alternatives to Traditional Financing

Trade-In Your Current Vehicle

If you own a vehicle with equity, trading it in reduces your financing needs^[2]. Check values using Kelley Blue Book or Edmunds before negotiating^[2]. Some buyers find selling privately yields more than dealer trade-in offers.

Wait and Rebuild Credit

If your situation permits, delaying the purchase to improve your credit score can save thousands^[1]. Focus on:

• Making all payments on time (most important factor)
• Paying down existing debt
• Not opening new credit accounts
• Disputing any errors on credit reports

Even 6 months of consistent positive behavior can improve scores meaningfully^[1]. Understanding how long the car buying process takes helps you plan timelines.

Consider Personal Loans

Some borrowers find personal loans offer better terms than auto-specific subprime loans^[1]. Compare total costs across options. However, personal loan rates for bad credit can also be high—sometimes exceeding auto loan rates.

Key Takeaways

• Bad credit car loans are widely available but come with significantly higher interest rates—typically 13-21% APR for subprime borrowers
• Save the largest down payment possible (aim for 20%) to improve approval odds and reduce costs
• Get pre-approved from multiple lenders before visiting dealerships to know your options and strengthen negotiating position
• Consider a co-signer with good credit to access better rates
• Watch for predatory practices and always read contracts carefully before signing

Frequently Asked Questions

References

1. Larry Spacc GMC. (2025). How to Finance a Car with Bad Credit: The Complete Guide. https://www.larryspaccgmc.com/blogs/7139/how-to-finance-a-car-with-bad-credit-the-complete-guide/
2. NerdWallet. (2025). How to Get a Car Loan With Bad Credit. https://www.nerdwallet.com/auto-loans/learn/how-to-get-bad-credit-auto-loan
3. Experian. (2025). Subprime Auto Loan: Guide & Rates. https://www.experian.com/blogs/ask-experian/subprime-auto-loan/
4. Investopedia. (2025). Subprime Auto Loan: How It Works and Rates. https://www.investopedia.com/terms/s/subprime_auto_loans.asp
5. Auto Fanatics USA. (2025). Bad Credit? Get Guaranteed Auto Loan Approval. https://www.autofanaticsusa.com/blog/guaranteed-auto-loan-approval
6. Granite Hyundai. (2025). What are Subprime Auto Loans? Rates, Terms, Factors, and More. https://www.granitehyundai.net/subprime-auto-loans.htm
7. LendingTree. (2025). Best Car Loans for Bad Credit. https://www.lendingtree.com/auto/bad-credit/
8. Investopedia. (2025). How You Can Still Get Approved for an Auto Loan Today. https://www.investopedia.com/how-to-get-an-auto-loan-with-bad-credit-11730265