How to Get a Car Loan With Bad Credit

Lenders consider your creditworthiness to determine your risk as a borrower. When seeking financing for a car, having a high credit score helps you access better loan options. Those with lower credit scores, on the other hand — typically 300–579 for FICO and 300–600 for VantageScore — have demonstrated that they haven't yet learned to manage credit responsibly and are, therefore, deemed higher-risk borrowers.

Nevertheless, getting approved for a car loan with bad credit is possible. But bear in mind that it may be difficult to get favorable terms. Make sure you compare interest rates and loan terms from multiple lenders.

Lenders consider credit scores when reviewing auto loan applications as it helps them determine how credible borrowers are when it comes to debt repayment. A person's credit score can also affect their interest rate and loan terms. The higher their credit score is, the better the loan offer.

Knowing your credit score before applying for a car loan can help you find the right lenders. You can use it to figure out if you qualify for a loan without going through the whole application process. You can get a copy of your credit report from AnnualCreditReport.com every year. There are also companies offering free credit scores.

Understanding your credit report can help you know how lenders use it to gauge your creditworthiness.

There are two types of credit scores widely used by lenders — FICO and VantageScore. Both use credit data and history to calculate scores.

FICO:

• Payment History – 35%
• Amounts Owed – 30%
• Length of Credit History – 15%
• New Credit – 10%
• Credit Mix – 10%

VantageScore:

• Payment History – 41%
• Depth of Credit – 20%
• Credit Utilization – 20%
• Recent Credit – 11%
• Balances – 6%
• Available Credit – 2%

When looking for an auto loan, it’s important to know which lenders offer the right products. Some lenders don’t accept borrowers with bad credit, while others do. Confirming whether a lender has a minimum credit requirement can save you time and money.

Here are some of the common places you need to check when trying to get a car loan with bad credit:

• Banks: Also known as traditional lenders, banks offer various loan options. If you already have a bank, you can start your search there. Ask them about auto loans and the offers you’re eligible to get. They may have better terms since you already have an established relationship with them.
• Credit unions: You may also consider credit unions, which are nonprofit institutions that offer financial services similar to banks. However, they only typically offer products to their members.
• Dealerships: Car dealerships also offer financing services to buyers. When buying a car, ask the dealership about their auto loan option. Make sure you check the terms first and compare them with other lenders.
• Online lenders: You may also find lenders online. Most of these loan providers include eligibility requirements and loan information on their websites. You may also complete the application process online.

Even with a poor credit score, there are multiple lending institutions you can choose from. Once you find the right lender, make sure you understand the loan terms to avoid unexpected fees and penalties.

The best way to get favorable loan terms is to improve your credit. There is no one way to do this, either. Depending on your circumstances, there are various methods you can try.

When it comes to buying a vehicle, your credit score plays an important role in determining your financing options. If you have a less-than-stellar credit score and aren't sure what options are available to you, learning the answers to some of the most commonly asked questions may help.