Having bad credit makes car buying harder, but not impossible. About 20% of auto loans go to borrowers with subprime credit. Here's how to navigate the process and get the best deal possible.
Understanding Bad Credit Auto Loan Rates
Current average rates by credit tier:
| Credit Score | Average APR |
|---|---|
| 601-660 (Nonprime) | 10-14% |
| 501-600 (Subprime) | 14-19% |
| Below 500 (Deep Subprime) | 18-25% |
Where to Get Bad Credit Auto Loans
1. Credit Unions
Often most lenient with members. Some credit unions specialize in bad credit lending. Rates are typically better than subprime lenders.
2. Buy-Here-Pay-Here Dealers
Finance directly through the dealer. Easier approval but highest rates (20%+). Use as last resort.
3. Online Subprime Lenders
- Capital One Auto: Works with a range of credit profiles
- Auto Credit Express: Specializes in bad credit
- Road Loans: Santander Consumer division
4. Dealership Special Finance Departments
Large dealers have relationships with subprime lenders and can shop multiple options.
How to Improve Your Approval Odds
- Make a larger down payment: 20% or more reduces lender risk
- Get a co-signer: Someone with good credit guarantees the loan
- Show stable income: Bring pay stubs and proof of employment
- Choose a less expensive car: Lower loan amounts are easier to approve
- Provide references: Some lenders check personal references
What to Avoid
- Yo-yo financing: Where dealers call you back to sign new terms
- Excessive add-ons: GAP insurance, warranties that inflate the loan
- Payment packing: When dealers quote higher payments than necessary
- Very long terms: 72-84 month loans with high rates are dangerous
Building Credit While Paying
A car loan is an opportunity to rebuild credit:
- Make every payment on time
- After 12-24 months of on-time payments, refinance for a better rate
- Monitor your credit score's improvement
Sample Payment Comparison
On a $15,000 loan for 60 months:
- 6% APR (good credit): $290/month, $2,400 interest
- 15% APR (subprime): $357/month, $6,420 interest
- Difference: $4,020 more with bad credit
The Best Strategy
If possible, wait 6-12 months to improve your credit before buying. If you must buy now, aim for the shortest term you can afford and plan to refinance once your credit improves.
