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6 min read Published March 02, 2023.

Written by Hanneh Bareham. Written Student loans reporter Hanneh Bareham specializes in everything connected to student and personal loans and helping you finance your next endeavor. She strives to help others reach their collegiate and financial goals by making loans simpler to comprehend. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has written and edited for Bankrate from late 2021. They are committed to helping readers gain confidence to control their finances by providing concise, well-studied information that breaks down complex issues into digestible chunks. The Bankrate guarantee

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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide our readers with the professional advice and tools required to succeed throughout life’s financial journey. Bankrate adheres to strict standards policy, which means you can be confident that our content is honest and precise. Our award-winning editors and journalists provide honest and trustworthy content that will help you make the right financial decisions. The content we create by our editorial team is objective, truthful and is not influenced from our advertising. We’re open regarding how we’re capable of bringing high-quality content, competitive rates and useful tools to you , by describing how we earn our money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We receive compensation for placement of sponsored products and, services, or by you clicking on certain links posted on our site. This compensation could affect the way, location and in what order products are displayed within the categories of listing, except where prohibited by law for our mortgage or home equity products, as well as other home loan products. Other factors, such as our own rules for our website and whether a product is available within your region or within your personal credit score could also affect how and where products appear on this site. We strive to provide an array of offers, Bankrate does not include specific information on every financial or credit products or services. If you have a poor credit score, you might be worried that you won’t be approved for an auto loan from an established lender. However, before you take out a loan via a buy-here, pay-here dealer think about researching all possible options. Even though being a victim of bad credit — a credit score between 300 and 500 can make getting a difficult task, it’s not impossible. Plus, you’ll find that the cost of borrowing is much lower when you use a bank credit union, or online lender no matter what your credit rating. Steps to get a car loan that are based on bad credit Prepare on several fronts before you start the application process to get an automobile loan with bad credit. Be particular about your credit score, and make certain that all terms are in place before the purchase goes through. 1. Be aware of your credit score prior to you begin shopping make sure you check your credit score. Based on the FICO credit scoring system which ranges from 300 to 850 scores, any score lower than 580 is considered to be poor. Your FICO score can be determined based on factors like how much you owe as well as the duration of your credit history as well as your payment history. Not making your payments on time, regularly spending more than your available monthly credit, and having a bad credit history can all affect your credit score. Tips from Bankrate

Before you apply for an auto loan be sure to avoid opening new credit cards or loans. Doing your best before you begin shopping can put you in a more favorable standing with the lender.

2. Make a savings account for a down payment If you have a lower credit score, on a car can increase your odds of getting accepted for the auto loan. Saving a little cash every month for a downpayment can be a good way to offset higher interest rates caused by having a low credit score. It also could lower your loan-to-value ratio, allowing you to be eligible for better rates. Experts recommend a down payment that is at least 20 percent however, if that’s too much, put down what you’re able to pay. You may find that some dealers who work with credit-challenged customers will accept down payments as low as $1,000. 3. Research as much as you can to avoid being in a rush when it’s time to bargain. When you’re applying for a loan be aware of the typical APRs for auto lenders. With the bad credit score, you’ll probably be offered the most expensive rates advertised. If you’re purchasing a used car, it also helps to be aware of the condition of the car you want to purchase. 4. Start looking around. Once you’ve started your search do not limit yourself to a single lender. There are many lenders that can help you secure an loan, including: Banks as well as credit unions. If you already have a relationship with a bank or credit union, you can start with them here. Certain credit unions and banks provide members with discounted rates. Online lenders: Many online lenders offer an application tool for prequalification on their websites, which lets you know the conditions you could be eligible for before applying. This will save you from having a hard credit check if you don’t meet the criteria. Car dealerships: You can be approved if you satisfy the credit and financial criteria. You’ll meet with an agent from the finance department, and they’ll forward your information to different lenders. Certain dealerships might offer loans to borrowers with a bad credit history. However, they typically mark up rates they provide to make more money on the deal. Dealerships that buy-here or pay-here: Buy-here, pay-here dealerships can be useful if you don’t get approved by an institution or lender for a loan however, be careful. While these dealerships may be more likely to approve someone who has a credit card, the rates can be much higher. Bankrate tip

They conduct an extensive credit test in the course of applying. It’s wise to consider three lenders within a 14-day timeframe to ensure that your credit score doesn’t be hit by multiple slaps.

5. Prequalify with lenders. Prequalification lets you see if you’re eligible to receive an loan prior to applying and view estimated loan terms. Additionally, you’ll be able to save time in applications and avoid unnecessary hard credit checks that can negatively impact your credit score. When you’re prequalified with a few lenders, you can submit documents and be preapproved. This will lead to a formal credit assessment, but a loan holds more weight as it demonstrates the lender’s willingness to provide an auto loan to you. You’ll also have leverage when you enter the dealership and can negotiate like a cash buyer. 6. Check that the terms are final. Avoid subprime lending Subprime lenders could appear to be a safe choice for those who are trying to obtain an auto loan with bad credit. These lenders usually cater to those with less credit scores and make the car buying process seem easy and stress-free — at first. However, they can also come with high interest rates and can mean paying thousands of dollars extra on interest for the duration of the loan. Bankrate tip

Only consider subprime lenders if you cannot find another financing option.

7. Shop loan terms do not include monthly payments. monthly payments appear attractive on paper, and are often used to lure buyers. They may lead to you paying more for your car over the life of the loan due to the fact that they . Since cars with loans for bad credit have higher APRs they could result in paying thousands more than the car’s worth by the end of the loan because of the interest accrual. When you shop for a loan, you should look for the most attractive conditions — typically the lowest APR over the shortest amount of time. This way, you’ll be able to make more affordable monthly payments with fair interest rates. If you are unable to find a low APR look into buying another vehicle. 8. Bring a companion along Consider co-signing with a friend or a relative to accompany you, according to Massachusetts-based consumer attorney Yvonne Rosmarin. Bringing someone you trust to the negotiation table can create confidence. A sense of confidence, when paired with knowledge, may lead to more favorable loan conditions. Consider asking a trusted relative or partner to serve as a . Ideally, the person you choose to co-sign with should have a steady source of income, a high credit score and an exceptional credit background. Co-signers reduce much of the risk for lenders -as the co-signer is accountable for the loan should you fail to make the payments. Co-signing with a co-signer could be a and usually results in an interest rate that is lower. 9. Look out for add-ons and frauds. Nonprime buyers are more likely to encounter lending contracts with nonessential products and services, according to Josh Frank, former senior researcher for the Center for Responsible Lending. Other costs, including , can pile up for nonprime buyers. Don’t sign any loan which is contingent on certain things, like extended warranties, aftermarket services or . Take note of such additional charges particularly if you’re planning to apply at a buy-here, pay-here dealership or you are planning to trade in your vehicle. Also, remember that incorporating these charges into the loan will mean you’ll have to have to pay more in interest over the loan time. 10. Be sure the terms are binding if you purchase a loan with a broker, always make sure the terms are in place before signing. If you don’t do this, you could have to pay more for your monthly payments. Some dealers who are shady tell buyers that their financing may not be completed until the buyer has completed the purchase and they have to accept a higher interest rate or return the car. This is called . Where can you locate a bad credit car loan Car loans are available through most banks, credit unions and online lenders. There is also dealership financing, which is discussed in the previous paragraph. However, if you’ve got bad credit, you’re more likely to get a loan that has reasonable terms with an internet lender. Certain credit unions will allow you to get the bad credit car loan if you have a positive track record with their institution. Take a look at Bankrate’s recommendations for the best to explore options. Credit-worthy car loan APRs Those with good or excellent credit score get the most attractive auto loan offers. This doesn’t mean that you’ll be denied loans even if your credit score is lower. However, your borrowing costs will likely be much higher due to the risk that you take on the lender. Here’s a breakdown on the most current average interest rates based on credit score from the fourth quarter of 2022 The credit score range

New car

Cars used

Deep Subprime 300-500 500

13.42%

20.62%

Subprime: 501-600

10.79%

17.46%

Near Prime: 601 to 660

8.12%

12.08%

Prime 661 to 780

5.82%

7.83%

Super Prime: 781 to 850

4.75%

5.99%

The next step is to take if you have bad credit, it may be more difficult to secure an auto loan. There could be lower interest rates or lenders who are predatory. The good news is that conducting research, saving up for a down payment and getting preapproved help you prepare to get the best price for an automobile loan. If you that’s right for you, be sure to make punctual payments to boost the credit rating. At that point, ; you could be able to get a loan with even better conditions. Find out more

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Written by Student loans reporter Hanneh Bareham specializes in everything connected to student and personal loans and can help you finance your next endeavor. She hopes to assist people achieve their collegiate and financial goals through making loans easier to understand. Written by Rhys Subitch Edited by Auto loans editor Rhys has written and edited for Bankrate since the end of 2021. They are passionate about helping readers gain confidence to take control of their finances through providing concise, well-researched, and well-researched content that breaks down otherwise complex topics into digestible chunks.

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