If you have a low credit score, getting approved for an auto loan can be tough but not impossible. This guide explains how auto loans work for people with bad credit, what lenders look for, where to find legit loan offers, and how to avoid high-interest traps.
Can You Get an Auto Loan with a Low Credit Score?
Yes, you can still get an auto loan with a low credit score, but it comes with challenges. Lenders see low credit as a risk, so they may offer higher interest rates, stricter loan terms, or require a co-signer or larger down payment. But don’t worry—there are ways to increase your chances and avoid common mistakes.
What Is Considered a Low Credit Score?
A credit score below 580 is generally considered poor by most lenders, according to FICO standards. Here’s a quick breakdown:
- 300–579: Poor
- 580–669: Fair
- 670–739: Good
- 740–799: Very Good
- 800–850: Excellent
If your score is under 600, you may be labeled a subprime borrower, but that doesn’t mean you’re out of options.
Check your credit score for free here here.
How Do Auto Loans Work for People With Low Credit?
If you have bad credit, auto loan lenders usually:
- Charge higher interest rates (often 10%–20% APR)
- Offer shorter repayment terms
- Require larger down payments
- Include stricter verification of income
Some lenders specialize in bad credit auto loans, and others may work through buy here, pay here dealerships. These can help you get approved but often come with high rates and hidden fees, so read the fine print carefully.
Where to Find Auto Loans for Bad Credit
Here are some trusted sources to explore:
- Online Lenders
- Examples: LendingTree, Carvana, myAutoloan
- Pros: Easy comparison, fast approvals
- Cons: May have higher APRs
- Credit Unions
- They often offer better rates even if you have poor credit.
- You’ll need to become a member, but the savings can be worth it.
- Subprime Auto Lenders
- These lenders focus on borrowers with scores under 600.
- Examples: Capital One Auto Finance, RoadLoans, Auto Credit Express
- Dealership Financing
- “Buy Here Pay Here” dealerships offer in-house loans but usually come with very high interest rates. Use them as a last resort.
Tips to Get a Better Auto Loan with Poor Credit
1. Check and Improve Your Credit First
Before applying, fix what you can:
- Dispute errors on your credit report
- Pay off collections or reduce credit card balances
- Pay bills on time for at least 6 months
Get help fixing your credit here.
2. Save for a Bigger Down Payment
A larger down payment reduces the loan amount, which lowers your monthly payments and interest. Even $1,000–$2,000 can make a difference.
3. Get Pre-Approved
Pre-approval helps you know how much you can borrow before shopping. It also gives you bargaining power at the dealership.
4. Shop Around for the Best Rates
Compare at least 3 lenders before committing. Some online tools can show you offers in minutes without affecting your credit score.
5. Consider a Co-Signer
If someone with good credit co-signs your loan, you might get better rates. But remember: if you default, the co-signer is responsible.
6. Don’t Finance Add-Ons
Avoid rolling extras like warranties, paint protection, or gap insurance into your loan. These inflate your total cost.
How to Avoid Auto Loan Scams and Predatory Lenders
Bad credit borrowers are common targets for scams. Protect yourself by:
- Avoiding loans with prepayment penalties
- Reading every contract before signing
- Watching out for lenders that don’t verify income
- Walking away if the interest rate seems outrageous (above 25% APR)
Use verified lenders listed on platforms like NerdWallet or Bankrate.
What Interest Rate Can You Expect?
Here’s an average breakdown by credit score:
| Credit Score Range | Average APR (New Car) | Average APR (Used Car) |
|---|---|---|
| 781–850 (Super Prime) | 5.61% | 6.90% |
| 661–780 (Prime) | 6.88% | 9.33% |
| 601–660 (Non-Prime) | 9.29% | 13.53% |
| 501–600 (Subprime) | 12.98% | 19.93% |
| 300–500 (Deep Subprime) | 14.78% | 21.55% |
(Source: Experian State of the Automotive Finance Market)
Can You Refinance Later If Your Score Improves?
Yes. Refinancing is a smart move once your credit score improves, especially after 6–12 months of on-time payments. You can:
- Lower your interest rate
- Reduce monthly payments
- Pay off the loan faster
Compare auto refinance rates here.
Should You Lease Instead of Buy with Poor Credit?
Leasing might seem easier, but most leasing companies still require fair-to-good credit (usually 620+). If your credit is under 600, leasing is unlikely unless you make a large upfront payment or work with a niche lessor.
Is an Auto Loan with Bad Credit Worth It?
It can be if you borrow smartly. Avoid emotional purchases. Focus on affordability, not just approval. Stick to a realistic budget, and never sign until you fully understand the loan terms. Get help fixing your credit here.