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Can i get a car loan with bad credit

You may be able to get a car loan with bad credit, but you’ll want to weigh the costs carefully.

If you need an auto loan but have less than perfect credit, your financing terms can be expensive. Lenders use credit scores to estimate how likely you are to repay your loan: the lower your scores, the more risk they think they’re taking. In exchange for that risk, lenders will generally charge a higher interest rate.

For example, someone with subprime credit (which Experian defines as scores from 501 to 600) received an average rate of 11.33% for a new vehicle and 17.78% for a used vehicle in the second quarter of 2020 , according to experience report. By comparison, the average interest rate on a 60-month new car loan was 5.14% during that same period, according to the Federal Reserve.

Reading: Can i get a car loan with bad credit

We’ll look at some steps you can take to find an auto loan that can help lower the cost of financing a vehicle, as well as review our picks for auto lenders that offer bad credit auto loans.

  • How can I get financing for a car with bad credit?
  • Can I get a car loan with a 500 credit score?
  • best auto loans for bad credit

How can I get financing for a car with bad credit?

These steps could help you improve your chances of getting approved for an auto loan that fits your budget.

check your credit

Before you start shopping for an auto loan, check your credit. check your credit reports for incorrect information and discuss those errors. inaccuracies could lower your credit score and affect your ability to qualify for a loan.

Checking your credit can also help you set your expectations before you start shopping for a loan. You can check your Equifax and TransUnion credit reports for free at Credit Karma or request one free credit report from each credit bureau per year at annualcreditreport.com.

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If you don’t need a new car right away, taking some time to build your credit could pay off; you may be able to qualify for a lower interest rate that could save you thousands on your auto loan. But if you can’t wait, you might consider asking a family member or close friend to co-sign. A co-signer with good credit may give you a better chance of getting approved for a loan or help you get better loan terms and rates.

save for down payment

Saving for a down payment can have several benefits. First, a down payment can help you qualify for a car loan more easily, especially if you have low credit scores. Without a down payment, the lender takes on more risk as they stand to lose more money if you default on the loan and need to repossess the car. in fact, some lenders may require you to make a down payment.

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plus, you’ll pay less interest with a down payment. the more money you put down, the less you’ll need to borrow for the car. that means you’ll pay interest on a smaller balance, which will reduce the total interest paid.

You can also get a lower interest rate if you make a down payment. Lenders consider your loan-to-value ratio (the amount of your loan versus the value of the vehicle) when setting your interest rate.

determine how much you can afford

Think beyond your monthly loan payment as you calculate how much you can afford to borrow. Consider the costs of car ownership, such as fuel, regular maintenance, car insurance, and any parking fees or property taxes, and factor them into your budget.

It can be tempting to extend the term of your loan to six or seven years in exchange for a lower monthly payment. But keep in mind that a longer auto loan term (such as up to 84 months) means you could end up paying more in interest over the life of the loan, and increases the risk of your loan going into reverse, which can create some challenges when it comes to selling or trading in your car because you will owe more than it is worth. Our auto loan calculator can help you estimate how much you’d pay in interest on an auto loan.

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shopping with different lenders

Searching and comparing loan rates and terms between lenders can help you find the best loan for your needs and budget. If you have bad credit, here are some lenders you might consider.

  • Your current bank or credit union: If you already have a relationship with a bank or credit union, that may be a good place to start.
  • Online Lenders: Some online lenders and lending platforms specialize in car loans for people with bad credit. they may also allow you to apply for prequalification directly on their websites. If you’re prequalified, you’ll be able to see the estimated loan rate and terms you may qualify for. just keep in mind that prequalification is not a guarantee that you will be approved for the loan or the estimated terms of the loan.
  • auto dealers: dealers often have relationships with a number of banks and finance companies, which means they can find a lender in their network who will approve a loan for you. some dealers also have special finance departments dedicated to helping people with bad credit.
  • dealers who buy here, pay here: if you can’t get approved for a car loan anywhere else and need a car, a buy here pay here dealership might be an option, but consider it a last resort. These “no credit check” dealerships offer their own loans to people with bad credit, and their interest rates tend to be much higher than those offered by banks and other lenders.

To minimize the impact purchasing an auto loan can have on your credit, it’s a good idea to look at rates within the same time period. FICO scoring models count multiple credit inquiries of the same type within a 45-day period as a single inquiry. vantagescore counts multiple queries within a 14-day period as a single query.

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

It is possible to get a car loan with a credit score of 500, but it will cost you. People with credit scores of 500 or less received an average rate of 13.97% for new car loans and 20.67% for used car loans in the second quarter of 2020, according to Experian’s State of the Automotive Finance Market report. .

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That’s a big difference from loan rates for people with credit scores of 661 to 780 (considered excellent): They received average rates of 4.21% for new car loans and 6.05% for used car loans.

Getting a car loan with a 500 credit score could also be difficult. Experian report shows that only 0.37% of new car loans and 4.35% of used car loans issued in Q4 2019 were to people with credit scores of 500 or less .

the best auto loans for bad credit

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Here are some of our picks for bad credit auto loan lenders.

good for interest rate discounts: new paths

new roads offers interest rate discounts on certain used and new car models that could lower your overall interest payments. And if you’re having trouble coming up with a down payment, it’s good to know that new roads don’t require it.

read our new highway auto loan review to learn more.

good for comprehensive purchases: caravan

With caravan, you can save time by shopping for financing and a car in one place. carvana considers applicants with bad credit, as long as they are 18 years old, have a minimum income of $4,000 per year and do not have active bankruptcies.

see our caravan financing review for more details.

good for people who filed for bankruptcy: roadloans

In general, breaks in your credit history can affect your ability to get approved for an auto loan. but roadloans considers applicants who filed for bankruptcy in the past, as long as the bankruptcy has been discharged.

learn more: read our roadloans review.

next steps

Bad credit auto loans exist, but they can be expensive. Taking steps to improve your credit before you buy a car can reduce some of the financial burden.

If you can’t delay your car purchase, consider purchasing a lower-priced but reliable used vehicle that meets your needs but requires you to borrow less. As you pay off your loan and work to improve your credit, you may be able to refinance your auto loan for a better rate in the future.

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