How to get a car loan with bad credit

Obtaining a car loan with a poor credit history poses significant challenges due to limited options and high costs. According to Experian data, only 16% of borrowers with a score of 600 or less secured a car loan in 2026, and they typically faced interest rates of 22%. In contrast, borrowers with scores of 781 or above enjoyed rates around 6%.

To secure a car loan despite a low credit score, focus on improving your credit before the purchase. Research thoroughly to identify the most competitive loan options for your financial situation. Check your credit score three to six months before applying to allow ample time for comparison and potential score improvement. Saving for a down payment reduces the principal amount, leading to lower monthly payments and potentially better loan terms. Aim for at least a 20% down payment, though any amount you can comfortably afford is beneficial.

Prequalification is a useful step, providing an estimate of your eligibility and loan terms without a hard credit inquiry. However, proceed with caution when dealing with high-risk lenders like "buy-here, pay-here" dealerships, which often charge exorbitant interest rates. Online lenders and BHPH dealers may offer more lenient terms to subprime borrowers, but their interest rates can exceed 21%, significantly increasing the loan's total cost over time.

For instance, a $30,000 loan with a 6-year term at a 6% rate versus a 22% rate demonstrates the dramatic impact of credit on overall loan costs.