If you need a car to commute to work or school, opting for a used vehicle is an excellent way to save money. However, used cars are still a significant investment. The average used car costs more than $27,000 as of November 2021, so you may need to take out a loan to finance your purchase. Show
Lenders typically want borrowers to have credit scores of 661 or higher. If your score is below that, then they consider you a nonprime, subprime, or deep subprime borrower, making it more difficult—but not impossible—to qualify for a loan. Here’s what you need to know. Key Takeaways
5 Ways to Get a Car Loan with Poor CreditHere are five things you can do to improve your odds of getting a car loan if you have bad or fair credit. 1. Improve your credit firstBefore you go shopping for a car, focus on improving your credit as much as possible. For example:
By following those steps, you could increase your credit score in as little as 30 days. 2. Save up for a down paymentThe lower your credit score, the less likely you are to get a loan large enough to finance the entire purchase price of a car (assuming you can get a loan at all). So it’s smart to save up for a substantial down payment. Car industry experts often recommend a down payment equal to 20% of the car’s purchase price, although many buyers put down less than that. However, putting even more money down can help you get a loan and a smaller monthly payment. 3. Look for an inexpensive vehicleThough you may dream of a spacious SUV with all the latest features, it can be difficult to get a loan to pay for if you have poor credit. Instead, focus on inexpensive vehicles that are more modest but still reliable. Opting for a smaller, entry-level vehicle over a larger or more luxurious one increases your chances of qualifying for auto financing. 4. Shop aroundRates on car loans can vary widely, so it’s a good idea to compare multiple lenders before applying for a loan. Dealerships are often happy to find financing for you because they take a commission on top of the lenders’ rate, sometimes up to 4%. If possible, avoid applying for financing at the dealership. If you have bad to fair credit, you’re likely to be better off securing a car loan on your own by shopping around and comparing loan terms. In addition to potentially finding better rates than at the dealership, securing financing yourself opens the door to private-party sales and auto auctions. With a variety of sales aggregator sites such as Cars.com, Edmunds.com, or AutoTempest.com, buyers can find individuals who may have better prices on vehicles without the overhead of a dealership. Facebook Marketplace has also become a platform for auto sales, especially for private-party sales. There are several types of lenders to consider:
5. Ask a co-signer to apply with youYou can increase your chances of getting a loan by adding a co-signer to your application. You can ask a parent, relative, or friend to co-sign your car loan. If they have good credit and a reliable income, you should qualify for a loan with a lower interest rate than you would find on your own. Bear in mind, however, that you’ll be putting them and their credit scores at risk if you’re unable to make the payments. Repaying, Refinancing Your Car LoanIf a lender approves you for a loan despite a poor credit score, try to come up with a repayment plan to minimize the interest charges. Check your loan agreement to see if an early payoff is an option. By making extra payments, you can reduce how much interest accrues, save money, and pay off your debt sooner. Making regular, on-time payments on an auto loan can help to increase your credit score. As your credit score improves, you may also want to consider refinancing your car loan to get a lower interest rate. With a higher credit score, you’ll find more attractive rates available. Can I get a car with a credit score under 500?Yes, but it may take some work. There are lenders that accommodate those with bad or no credit, but they come with extremely high interest rates and fees. A “second chance” car loan, also known as a subprime auto loan, might be your best option. These lenders specialize in those with extremely low credit scores, bankruptcies, or repossessions on their credit report. Many established banks offer second chance loans, which may carry higher interest rates. You may also find subprime auto loans at “buy here, pay here” dealerships, where payments are made directly to the dealership. Can you build credit by financing a car?Yes and no. Financing a car can build your credit over time, but it may initially lower your credit because you’ve taken on this new debt. The way to build credit when you finance a car is to make your payments on time. If you’re not able to do this, then financing a car will hurt your credit. Can you finance a car if you have no credit?Having no credit will bring the potential buyer many of the same challenges as the person with poor credit. Your best options are to find a co-signer with established credit, increase your down payment, or see whether you qualify for any special loan programs. Will dealers limit the selection of cars if I have bad credit?It’s a good possibility. According to the used car dealership DriveTime.com, it’s not uncommon to hear stories about people with bad credit being shown a different selection of cars from other buyers. Ask the dealer in advance if you will have any vehicle restrictions and what type of car you can expect to qualify for. The Bottom LineA suboptimal credit score will definitely make it harder—but not impossible—to get a car loan. The steps to securing financing for this purchase are similar to any other purchase: Which car company is best for bad credit?Best Subprime Auto Lenders. #1 Auto Credit Express: Best For Bad Credit Car Financing. Loan amount: Varies by lender. ... . #2 Carvana: Best For Online Bad Credit Car Financing. Loan amount: $1,000 to $85,000. ... . #3 Capital One Auto Refinance: Best For Bad Credit Auto Loan Prequalification. Loan amount: $7,500 to $50,000.. What is the lowest credit score to buy a car?In general, you'll need a credit score of at least 600 to qualify for a traditional auto loan, but the minimum credit score required to finance a car loan varies by lender. If your credit score falls into the subprime category, you may need to look for a bad credit car loan.
What is the easiest car company to get financing?The Easiest Auto Loans to Get Online. Auto Credit Express. 4.9 /5.0 Stars. ... . Car.Loan.com Auto Loan. 4.5 /5.0 Stars. ... . myAutoloan.com. 4.0 /5.0 Stars. ... . Carvana. ... . Capital One Auto Finance. ... . Credit Acceptance. ... . DriveTime. ... . LightStream.. |