You can buy a car with bad credit, but you will pay more for the loan and need to prepare differently than someone with good credit

A low credit score does not lock you out of car buying. Dealerships, credit unions, and online lenders all work with people whose credit is damaged or nonexistent. The catch is real: interest rates will be higher, down payments will be larger, and the loan terms will be shorter. A person with a 750 credit score might get a car loan at 5 percent; a person with a 550 score might see 15 to 20 percent. That difference costs thousands of dollars over the life of the loan.

The path forward depends on what you can afford upfront, whether you have a co-signer, and which lenders will work with your credit range. Some routes are faster but more expensive. Others take longer but save money. This guide walks you through the real options, what each one costs, and what mistakes to avoid.

Key Takeaways

  • Interest rates for bad-credit car loans typically range from 12 to 20 percent, so a $15,000 loan could cost $4,000 to $6,000 more in interest than a loan at standard rates.
  • Saving a larger down payment — even $1,000 to $2,000 — reduces the amount you borrow and can lower your interest rate by 1 to 3 percentage points.
  • Credit unions often offer lower rates than dealerships or online lenders, but you must be a member and meet their lending standards.
  • A co-signer with better credit can get you approved and lower your rate, but they are legally responsible if you stop paying.
  • Buying a used car under $10,000 and paying cash or putting down 50 percent reduces your risk and the lender's, making approval easier.

How bad credit affects your car loan terms

Lenders use your credit score to decide three things: whether to lend to you at all, what interest rate to charge, and how much you must put down. A low score signals to a lender that you have missed payments, carried high balances, or defaulted on past debts. They offset that risk by charging you more.

The difference between a 650 credit score and a 750 credit score on a $15,000 car loan can be $50 to $100 per month in extra payments. Over a five-year loan, that is $3,000 to $6,000 more out of your pocket. Lenders also shorten loan terms for bad-credit borrowers — you might get 36 to 48 months instead of 60 to 72 months — which means higher monthly payments even at the same rate.

Down payment requirements also climb. A person with good credit might put down 10 percent; a person with bad credit might need 20 to 30 percent. This protects the lender because if you default, they can sell the car and recover more of their money.

Where to get a car loan when your credit is low

You have four main routes: dealership financing, credit unions, online lenders, and buy-here-pay-here lots. Each has different costs, approval speed, and requirements.

Dealership financing is the fastest but usually the most expensive. Dealerships work with multiple lenders and can often get you approved the same day. The downside is that they mark up the interest rate — the lender approves you at 14 percent, but the dealership sells you the loan at 16 or 17 percent. Dealerships also push add-ons like extended warranties and gap insurance that you may not need. If you go this route, get pre-approved elsewhere first so you know what rate you should expect.

Credit unions typically offer the lowest rates for bad-credit borrowers, sometimes 2 to 5 percentage points lower than dealerships. The catch is that you must be a member, and membership rules vary. Some credit unions are open to anyone in a geographic area; others require you to work for a specific employer or belong to a specific group. Credit unions also move slower — approval can take a week or more — and they may require you to have a savings account with them. Start by searching "credit unions near me" and calling to ask about membership and car loan rates.

Online lenders like Upstart, LendingClub, and Elevate work with bad-credit borrowers and give you a decision in hours or days. Rates vary widely depending on the lender and your score, but they are often lower than dealerships and higher than credit unions. Online lenders do not require you to buy a specific car — you get the money and buy what you want. This is useful if you want to avoid dealership markups, but it means you are responsible for the car's condition and history.

Buy-here-pay-here lots are dealerships that also finance the cars they sell. They work with people who cannot get loans anywhere else. The trade-off is steep: interest rates can exceed 20 percent, and many require you to make payments in person at their location weekly or twice weekly. Some install GPS trackers or starter interrupt devices that disable the car if you miss a payment. Use this option only if no other lender will work with you.

How to improve your chances of approval

Before you explore, take steps that cost nothing but make lenders more willing to work with you. Check your credit report for errors — you can get a free copy at annualcreditreport.com, the only official site. Dispute any mistakes you find; they can lower your score by 50 to 100 points. Even if your report is accurate, knowing your score helps you target lenders who work in your range.

Save a down payment. This is the single most powerful move you can make. A $2,000 down payment on a $12,000 car reduces your loan amount to $10,000, which is easier to approve and carries a lower rate. Lenders see a larger down payment as proof you are serious and have some financial stability. If you can put down 30 to 50 percent, approval becomes much easier and rates drop noticeably.

Get a co-signer if you have someone in your life with better credit who is willing to take the risk. A co-signer is legally responsible for the loan if you cannot pay. They do not own the car, but their credit is on the line. This is a serious commitment for them, and many people should not ask. If you do have someone willing, their better credit can get you approved and lower your rate by 3 to 5 percentage points.

Bring proof of income and stable housing. Lenders want to see that you have a job and a permanent address. Bring recent pay stubs, a letter from your employer, or tax returns. If you rent, bring a lease or a recent utility bill. If you own your home, bring a mortgage statement. This paperwork takes minutes to gather and shows lenders you are not a flight risk.

Choosing the right car to buy

The car you choose affects both your approval odds and your total cost. A $25,000 new car requires a larger loan and higher monthly payments than a $8,000 used car. For someone with bad credit, a used car under $10,000 is usually the smarter choice.

Older cars cost less upfront, which means you borrow less and pay less interest. A $8,000 car at 16 percent over 48 months costs about $1,900 in interest. A $20,000 car at the same rate costs $4,700 in interest. The difference is real money. Used cars also depreciate more slowly than new cars — a five-year-old Honda Civic loses less value than a brand-new one.

Before you buy any used car, get a pre-purchase inspection from a mechanic who is not connected to the seller. This costs $100 to $200 and can save you thousands by catching hidden problems. Check the vehicle history on Carfax or AutoCheck using the VIN. Look for accident history, title problems, and service records. A car with a clean history and recent maintenance is worth paying a bit more for.

Avoid cars with salvage titles, flood damage, or major accident history. These are cheaper for a reason — they are risky and hard to insure. Avoid cars with outstanding loans or liens unless the seller can prove the loan will be paid off at closing. You do not want to discover after you buy that someone else owns the car.

What to expect during the loan process

Once you have chosen a lender and a car, the process moves quickly or slowly depending on the lender. Online lenders and dealerships can approve you in hours. Credit unions take a few days to a week. Here is what happens at each step.

First, you fill out an process with your personal information, income, employment history, and the details of the car you want to buy. The lender pulls your credit report and verifies your income. This is called a hard inquiry and temporarily lowers your credit score by a few points. Multiple hard inquiries in a short time (within 14 to 45 days, depending on the credit bureau) count as a single inquiry, so explore to multiple lenders within a short window if you want to compare offers.

If you are approved, the lender sends you a loan offer with the interest rate, monthly payment, and loan term. Read this carefully. Make sure the rate matches what you were quoted, the term is what you agreed to, and there are no surprise fees. Some lenders add documentation fees, processing fees, or prepayment penalties. Ask about each one.

Once you sign the loan agreement, the lender sends the money to the seller or dealership. You sign the title transfer, and the car is yours. The lender holds the title as collateral until you pay off the loan. You cannot sell the car or refinance it without the lender's permission until the loan is paid in full.

Common mistakes to avoid

The biggest mistake is borrowing more than you can afford. A $300 monthly payment sounds manageable until you add insurance, gas, and maintenance. A realistic budget is no more than 15 to 20 percent of your gross monthly income. If you make $2,000 a month, your car payment should not exceed $300 to $400. This leaves room for insurance (usually $100 to $200 a month for someone with bad credit) and repairs.

Do not skip the pre-purchase inspection to save $150. A transmission problem or engine damage can cost $2,000 to $5,000 to fix. The inspection pays for itself if it catches one major issue.

Do not accept add-ons you do not understand. Extended warranties, gap insurance, and paint protection plans are sold at the dealership and added to your loan. Gap insurance is sometimes worth it — it covers the difference between what you owe and what the car is worth if it is totaled. Everything else is usually overpriced. Ask the dealership to remove add-ons before you sign.

Do not miss payments. A single missed payment damages your credit further and can trigger repossession. If you are struggling to pay, call your lender when ready. Many will work with you on a temporary payment reduction or deferment rather than let you default.

Frequently Asked Questions

What credit score do I need to buy a car?

There is no minimum, but most traditional lenders want a score of 620 or higher. Below 620, your options narrow to buy-here-pay-here lots, online lenders that specialize in bad credit, or dealerships with subprime lending programs. Rates and terms get worse as your score drops.

Can I get a car loan with no credit history?

Yes, but it is harder than having bad credit. Lenders have no history to judge you by, so they focus on income, employment stability, and down payment size. A larger down payment (30 to 50 percent) and a co-signer make approval much more likely. Credit unions are often more flexible with no-credit borrowers than dealerships.

Should I buy a car before or after improving my credit?

If you need a car now, buy now. Improving your credit takes months or years. You can refinance the loan later once your score improves — many lenders allow refinancing after 6 to 12 months of on-time payments. In the meantime, making your car payments on time actually helps rebuild your credit.

What if I cannot afford the down payment?

Some dealerships and online lenders offer zero-down financing for bad-credit borrowers, but the interest rate will be higher to offset the lender's risk. If possible, save even $500 to $1,000 — this noticeably improves your approval odds and rate. If you cannot save anything, focus on lenders who specialize in zero-down loans and expect to pay 18 to 22 percent interest.

Can I refinance my car loan to a lower rate later?

Yes, if your credit improves or after you have made 6 to 12 months of on-time payments. Some lenders will refinance their own loans; others require you to refinance with a different lender. Refinancing makes sense if the new rate is at least 1 to 2 percentage points lower and you have enough loan term left to recoup the refinancing costs.