Key takeaways
- Subprime borrowers can often get auto loans, but at much higher APRs, so total cost matters more than ever.
- On a $15,000, 60-month loan, a 20% APR costs about $4,700 more in interest than a 10% APR.
- Buy-here-pay-here lots offer easy approval but can combine high prices, high rates and aggressive repossession practices.
- Shopping outside lenders first, putting more down and choosing a cheaper car are the strongest protections.
In this guide
You can usually get a bad credit car loan, but expect a higher APR, a larger down payment requirement and fewer lender choices. Shop outside lenders before visiting a dealer, compare offers by total cost rather than monthly payment, choose a modestly priced car, and be cautious with buy-here-pay-here lots, often the most expensive option.
Subprime auto lending is a large market, which cuts both ways: plenty of lenders will approve you, and some of them are counting on you not reading the contract closely.
How lenders price loans for bad credit
Auto lenders sort borrowers into credit tiers and assign higher APRs to lower tiers to cover the greater risk of default. Scores below roughly 600 are commonly considered subprime, though every lender sets its own cutoffs. Our guide on auto loan rates by credit score explains how those tiers work.
Beyond the score, subprime lenders tend to look closely at:
- Income and job stability, often with pay stubs or bank statements
- Debt-to-income and payment-to-income ratios, to confirm the payment is manageable
- Residence stability and verifiable references
- Past auto loan history, especially prior repossessions
- The vehicle, since older, high-mileage cars are riskier collateral
Because the rate is high, every other variable matters more. A higher price, a longer term or rolled-in add-ons all accrue interest at that elevated rate.
What a high APR really costs
The rates below are hypothetical, chosen to illustrate the spread you might see across credit tiers. They're not current quotes.
| APR (hypothetical) | Monthly payment | Total interest | Total paid |
|---|---|---|---|
| 10% | $319 | $4,122 | $19,122 |
| 20% | $397 | $8,845 | $23,845 |
| 29% | $476 | $13,568 | $28,568 |
At high rates, borrowing less is the most powerful lever you have. Cutting the loan from $15,000 to $10,000 at 20% saves far more than any extra you'd pay for a slightly better car.
Buy-here-pay-here dealers: what to watch for
Buy-here-pay-here (BHPH) dealers sell the car and finance it themselves, often with minimal credit checks. For someone turned down elsewhere, that can seem like the only door open. It's worth understanding the trade-offs before walking through it.
| Feature | What it can mean for you |
|---|---|
| Easy approval | Approval may be based mainly on income and down payment, not credit |
| High vehicle prices | Cars may be priced well above their market value, so you borrow more |
| High APRs | Rates are often at or near the maximum your state allows |
| Frequent payments | Weekly or biweekly payments, sometimes in person |
| GPS trackers and starter-interrupt devices | Some dealers install devices that locate the car or prevent it from starting after a missed payment; rules vary by state |
| Credit reporting | Some dealers don't report on-time payments to credit bureaus, so the loan may not help your score |
| Repossession | Repossession can happen quickly after a missed payment, and you may still owe a deficiency balance |
Read the contract for arbitration clauses, late fees and any requirement to make payments in person. Also consider having an independent mechanic inspect the car. Many BHPH vehicles are older and sold as-is, and a major repair can make it hard to keep up with payments on a car you still owe money on.
State laws govern interest rate caps, repossession procedures and the use of payment-tracking devices, and they differ considerably. Your state attorney general's office or consumer protection agency can tell you what applies where you live.
Better ways to get a bad credit car loan
- Check your credit reports first. Errors are common, and disputing them is free. Removing a mistaken collection or late payment can move you up a tier.
- Apply with outside lenders before shopping. Credit unions in particular sometimes work with members who have weaker credit. Getting preapproved for an auto loan, even at a high rate, gives you a benchmark to compare against dealer offers.
- Save a bigger down payment. It reduces the loan, may lower the rate, and protects you against owing more than the car is worth.
- Choose a cheaper, reliable car. A dependable, modestly priced used car keeps the loan small.
- Keep the term as short as you can manage. Long terms at high rates multiply interest.
- Consider a co-signer carefully. A co-signer with good credit can lower your rate, but they're legally responsible for the full debt if you fall behind, and missed payments hurt their credit too.
- Decline add-ons you don't need. Service contracts and other extras increase the amount financed at your high rate.
Insurance and other costs with bad credit
Lenders require comprehensive and collision coverage on financed cars, and in many states credit history also affects insurance premiums. If you need proof of financial responsibility after certain violations, you may also need an SR-22 filing. Get insurance quotes before you commit, so the total monthly cost fits your budget.
Using the loan to rebuild credit
A subprime auto loan that's reported to the credit bureaus and paid on time can help rebuild your score. After six to twelve months of consistent payments, check whether you can refinance the car loan at a lower rate. Setting up automatic payments and keeping other balances low will help your score improve faster.
If you do fall behind, contact the lender before you miss a payment rather than after. Many lenders will discuss a due-date change or a short deferral, and those options are usually far less damaging than a repossession, which can leave you without a car and still owing money.
The bottom line
A bad credit car loan is usually available, but the high rate makes every extra dollar borrowed expensive. Shop outside lenders first, borrow as little as you can on a short term, and treat buy-here-pay-here financing as a last resort that deserves careful questions. Paying on time and refinancing later is the realistic path to a cheaper loan.
Frequently asked questions
What credit score is considered bad for a car loan?
Lenders set their own cutoffs, but scores below roughly 600 are commonly treated as subprime, and scores around 500 and below as deep subprime. Many auto lenders use FICO Auto Scores, which run on a wider range than standard scores. Your score is not the only factor; income stability, down payment and past auto loan history also affect whether and how you are approved.
Can I get a car loan with a 500 credit score?
It is often possible, but options will be limited and the APR will likely be high. Expect lenders to ask for proof of income, a down payment, and possibly a co-signer. Credit unions, subprime lenders and dealer-arranged financing are the usual routes. Compare every offer by total cost, and be wary of any deal that only works with a very long term.
Do buy-here-pay-here dealers report to credit bureaus?
Some do and some do not. If the dealer does not report your on-time payments to the major credit bureaus, the loan will not help rebuild your credit, which is one of the main reasons many borrowers take a subprime loan. Ask directly which bureaus the dealer reports to, and get the answer in writing before you sign.
How much down payment do I need with bad credit?
Requirements vary by lender. Some subprime lenders ask for a set dollar amount, often around $1,000 or more, or a percentage of the price. Beyond meeting the minimum, a larger down payment lowers the amount you borrow, may improve your rate, and reduces the chance of owing more than the car is worth if it is totaled or repossessed.
Can I refinance a bad credit car loan later?
Often, yes. After six to twelve months of on-time payments, and especially if your score has improved, you may qualify for a lower rate with a different lender. Check for prepayment penalties first and confirm the car still meets the new lender's rules on age, mileage and value. Refinancing into a longer term can reduce the payment but raise total interest.
Official Resources & Further Reading
Use these resources to check current guidance. Requirements and availability may vary by state and provider.
This guide is for general educational purposes and is not individualized financial, legal, tax or insurance advice. Product terms, rates and availability vary by provider and location. How we make money.
