Is It Difficult to Get Car Loans with Bad Credit?
It might take some effort to get a car loan with bad credit, but it's not as difficult as you think. While some lenders require a credit score of higher than 580, many car loan lenders now offer bad credit auto loans for those with poor credit history.
These loans may ask for additional requirements like a cosigner and offer high interest rates, but you can get one, as long as you fulfill the eligibility mark and requirements.
Since a car loan is a type of secured loan in which the lender can repossess the vehicle if you default on your payments, car loan lenders take on minimal risk, as they do with other unsecured loans. Thanks to this and the increase in car loans for bad credit, you can get approved for a loan, regardless of your credit score.
What Credit Score Is Needed for an Auto Loan?
There’s no fixed credit score requirement for car loans. But good credit can increase your chances of getting approved for a car loan with reasonable interest rates.
Since loan lenders need to evaluate your credit report before they approve you for a loan, they may view a bad credit score as a red flag and reject your loan application. Some lenders even set a minimum credit score, which is above 580, in most cases.
Fortunately, you don’t need a minimum credit score to apply for a car loan as any credit score is typically acceptable. These days, many car loan lenders look beyond credit scores and consider other factors, such as stable income, past debts, debt-to-income ratio, and financial handling.
Your credit score won’t necessarily lead to an auto rejection from car loan lenders, especially those offering loans for bad credit. However, it will play a role in the interest rate, fee, and loan term that the lender will offer you. If you have poor credit or fair credit, you can expect higher-than-average fees and interest rates.
Top 5 Bad Credit Car Loans
Searching for car loans for bad credit but just can’t seem to find the right one? We’ve listed the leading bad credit car loan dealers to help you make the most informed decision.
Car.Loan.com
Three minutes is all it takes to submit an application onCar.Loan.com and get prequalified. You can easily connect to a large network of car dealers that don’t ask for an outstanding credit rating to get you the keys for your next car.
With the fast response time promised by this company, you can expect a call within 24 hours. Bankruptcy, bad credit, or even no credit at all isn’t an issue. With affordable payments, same-day approvals, and no interest fees, this one is a true standout!
WeLoans
WeLoans has an extensive network of highly-rated lenders in the personal loan industry. With a 3-minute application form, you can apply and receive loan offers from these lenders within minutes. Plus you can get approved in lightning-fast time, often within 24-48 hours. You may use the funds for any purpose, including auto finance.
A painless process isn’t the only benefit this online broker offers. It will also empower you to compare offers from various lenders, all in one place so you can easily choose the best one.
LendingTree
With 22 years of experience under their belt, LendingTree is another company that has made a name on our list of best car loans for bad credit.
If you’re looking for several car loan offers in one place, this website should be on your radar. It can connect you with a network of dealers so you can compare fees, interest rates, loan terms, down payments, and much more without too much hassle.
Another perk is the quick processing time by their partner lenders. Once you choose a loan and fill out the paperwork, you can receive the funds that same day!
MyAutoloan.com
MyAutoLoan.com sets itself apart from other service providers by offering a range of services. They don’t limit themselves to car loans and refinance deals as they’ve expanded to provide lease buyouts as well.
After you prequalify, you’ll receive offers from up to four auto dealers, within minutes. Take your time to compare the offers. Once the deal is official, you can borrow within 24 hours!
Auto Credit Express
Bad credit isn’t a problem when you apply for auto financing through Auto Credit Express. With over $1 billion worth of bad credit loans deposited to date, they’ve made a name for themselves in the industry.
Their network of dealers specializes in bad credit and can help you buy a car, regardless of how bad your score is.
Once you prequalify, Auto Credit Express will connect you to a local dealer so you can finalize the deal. It will also recommend vehicles and make it easy for you to find the perfect car to drive off in.
Learn more about title loans in different states
How to Get Approved for an Auto Loan with Bad Credit
With bad credit, you can still apply for a car loan. The first thing you need to do is look for lenders that offer bad credit car loans. Now, to maximize your chances of approval, it’s a good idea to do the following.
Get a Co-Signer
If you default on a car loan, a co-signer will be liable for your payments and find that their credit score takes a hit. A co-signer can be a spouse, parent, friend, or anyone else you know and trust. Bad credit car loan lenders usually require a co-signer with a good credit score as additional security to ensure the loan will be repaid. A cosigner can also increase your chances of approval.
Pre-Qualify
It’s wise to use the pre-qualification feature most lenders offer to check whether your current position qualifies you for a loan. Since there is no credit check involved, you’ll know where you stand with the loan approval right off the bat.
Save for a Down Payment
Once again, while it may not be required, paying some percentage of the total car loan as a down payment is a good idea. This shows the lender that you’re serious about making the payments. Plus it reduces your interest charges and overall cost of borrowing.
Pay Off Debts
Improving your credit score is a long-term process. However, if you have plans to apply for a car loan, paying off previous debts can improve your chances of getting one. Some lenders require applicants to have no existing loans under their name. Even if that’s not the case, paying off debts can somewhat balance your application against the low credit score.
Things to Consider When Getting Bad Credit Car Loans
Choosing the first lender that offers you a car loan for bad credit can be a mistake. To find the right car loan for your unique situation, shop around and compare the following factors.
Interest rate
You can’t expect interest rates that are "too good to be true" when you apply for a bad credit car loan. A credit score on the low end should prepare you for higher interest rates.
However, some lenders will charge sky-high rates simply because you have bad credit. Steer clear of these lenders and compare the rates of multiple lenders before settling on one. A lower interest rate can save you hundreds or even thousands of dollars on your car loan.
Documentations
To get approved for a loan, you’ll need to submit certain documents. The more complex the documentation requirements are, the longer the application process will take.
That’s why you should opt for a lender with a simple documentation process, instead of one that prolongs it. The companies we mentioned above can all meet that need. Note that reputable lenders require at least some type of documentation so if you find one that doesn’t, it might be a scam.
Loan-to-Value Ratio
Loan-to-value ratio is the amount of money you’re borrowing on the total value of the asset. For instance, a $100 payment on an asset that’s worth $1,000 equates to an LTV of 90%.
To choose a lender, compare bad credit auto loan lenders and shortlist the ones with flexible LTV requirements, especially if you can’t afford to pay large amounts in the beginning and are at risk of bankruptcy or overdrawing your account.
Loan Term
Does the lender offer a loan term that suits your needs and one that will allow you to easily repay the loan? If not, you should consider an alternative option.
One lender may put the cap at 3 years, while another one may offer a loan term of up to 8 years. Think about it and select the one whose loan durations are well within your ease of repayment.
Customer Reviews
Last but not least, look over customer reviews in detail as they can tell you a lot about a lender’s operations and customer service. Lenders with too many negative reviews or not enough reviews at all are ones that you need to avoid. Also, pay attention to whether and how a company has responded to a reviewer’s complaint.
Alternatives to Bad Credit Installment Loans
Bad credit auto loans aren't the only source of financial support when you run out of money.
Here are other ways to borrow money without stellar credit:
Borrow from Families/Friends
One of the easiest ways to borrow money is to ask your family or friends. This way, you can have some fast cash without high interest rates. However, you need to consider the risks of hurting your relationships in case you’re unable to repay timely.
Payday Loans
This type of loan can get you out of a financial emergency immediately until your next payday. While payday loans can provide urgent expenses up to $1000 in most cases, they come with really high interest rates and charges.
Title Loans
Title loans are another suitable option for those who need to borrow a loan with bad credit. You need to hand over the car title as collateral to the lender and get money in return. However, be prepared to lose your asset in case you miss the repayment deadlines repeatedly or go into default.
Frequently Asked Questions
Can I get a car loan with a 500 credit score?
Of course, you can get a car loan with a bad credit score of 500. However, you need to be mindful that with a credit score as low as 500, you’ll pay more interest rates and fees than someone with good credit.
Which car company is best for bad credit?
There are several companies that offer auto bad credit loans, including Car.Loan.com, WeLoans, and LendingTree, to name a few. The "best" option depends on your preferences after you’ve considered the features of each company.
How do car loans impact my credit?
For starters, applying for a car loan will incur a hard credit check. If you’re approved for the loan, timely repayments can increase your credit score. On the other hand, missed or late payments can bring it down.
What do car dealers see in my credit report?
Car dealers consider various factors when they evaluate a credit report, aside from just your credit score. They’ll look at previous debts and repayments, existing debts, transactions, and average available credit to get an overview of your creditworthiness.
How much is a $10,000 car loan a month?
You’ll need to calculate this to get an accurate amount. Add the additional fees, loan amount, loan term, and APR, typically up to 36%, to an online loan calculator to get the monthly amount. The cost per month can range from $300 to $600 USD for a 3-year loan, depending on the factors above.