Second-chance car loans: What they are and how to get one

A second-chance auto loan is a type of bad credit auto loan tailored for borrowers with subprime or deep subprime credit scores. These loans come with higher interest rates, which can make the overall cost of the loan much more expensive. While these loans can be useful for getting a car quickly, they often come with less favorable terms and higher borrowing costs.

Those with credit scores between 501 and 600 are considered subprime, while scores lower than 500 are categorized as deep subprime. Eligibility requirements for these loans vary among lenders, but most require a minimum credit score and income. Interest rates are typically higher for subprime borrowers compared to those with excellent credit.

For example, borrowers with excellent credit had an average interest rate of 6.29% on a used car loan in Q2 2026, while subprime borrowers faced an average rate of 19.10%. Some lenders, such as dealership financing or buy here, pay here (BHPH) lots, may offer these types of loans to customers with no or low credit scores. However, it's advisable to consider these options as a last resort due to the high interest rates.

Alternative options, like car shopping online at dealerships like Carmax or Carvana, may offer better terms. Additionally, some local banks and credit unions may be more willing to work with borrowers who have poor credit, offering lower rates and considering your broader financial situation. It's essential to carefully read the loan contract, understand all associated costs, and confirm if the lender reports to the credit bureaus before signing any paperwork.