Bad credit auto loans, also known as subprime auto loans or second chance loans, are loans catered specifically to people with bad credit. If you’re wondering how to buy a car with bad credit, you should begin by learning about bad credit auto loans and how to increase your chances of approval. Keep reading to learn more about the best bad credit auto loans, and then continue on to our guide to bad credit loans below.
Our Top Picks for Best Bad Credit Auto Loans
- Autopay - Best for Refinancing
- Capital One - Best for Prequalification
- Carvana - Best for Quick Approval
- Digital Federal Credit Union - Best for Higher Loan Amounts
- CarMax - Best for Used Car Purchases
Best Bad Credit Auto Loans Reviews
- Apply for multiple loan options with one application
- Allows cosigners
- Wide range of loan amounts
- May require a down payment
- Slightly slower application process
Why we chose it: Autopay is one of the best auto loans for bad credit because it allows you to compare loans from multiple lenders, making it easier to find a refinancing loan with the best possible terms. It also offers multiple types of refinancing.
You may be able to find the following types of refinancing loans with Autopay:
- Traditional refinancing — Use this loan to reduce interest or monthly payments or shorten your loan terms. You could also add or remove people from your loan in the process.
- Cash back refinancing — You can receive up to $12,000 in cash to use for paying off your high-interest debt or personal expenses.
- Lease buyout refinancing — Use a lease buyout to pay off a lease early, avoid fees and keep driving your car until the end of your lease term.
Since Autopay acts as a loan comparison site, it doesn’t have a solid minimum credit score. Instead, credit requirements are set by each individual lender. You should therefore research each lender to see if you qualify for a specific loan. Fortunately, the website offers a wide variety of auto loans for individuals with bad credit.
Autopay can provide a fairly wide range of loans as low as $2,500 or as high as $100,000. You won’t have to take out more than you need, but you can take out a larger loan for more expensive or higher-quality vehicle purchases. Loan terms are also available in a wide range from 24 to 96 months, giving you more flexibility for monthly payments.
You can pre-qualify for Autopay loans by filling out a simple application. Autopay will generate a list of loans you qualify for and run a hard credit check when you pick a loan offer. Your base application may require copies of your driver’s license, proof of insurance, proof of income, proof of residence and a payoff letter for refinancing. Lenders may request other documents as needed. Loan approval can take up to 48 hours, which is longer than many other online lenders. You won’t need to make a payment for 45 days after approval.
- Browse loan options and vehicles at the same time
- Prequalify before finishing your application
- No early payoff fees
- Only available at participating dealerships
- Must apply with a dealer to finalize loan terms
Why we chose it: Capital One allows you to prequalify before fully applying for a loan, which reduces any potential negative impact on your credit.
Capital One doesn’t have strict credit requirements, so options are available for people with bad credit. However, to pre-qualify for a loan, you must make at least $1,500 monthly.
Auto loans from Capital One start as low as $4,000. Terms may range between 36 - 72 months. However, you may need to meet certain credit eligibility levels to qualify for the most extended terms. Capital One also offers refinancing, pre-approved offers and payment calculators. Use the tools on the Capital One website to learn more about your offer before making any decisions.
Capital One makes it relatively easy to find a car since you can look for a vehicle and get financing at the same time. You can start by either browsing vehicles on the Capital One Auto Navigator or seeing if you pre-qualify for a loan, which won’t affect your credit score. If you pre-qualify, you will need to visit the dealership where you want to purchase a vehicle to finish your application. Your pre-qualification terms won’t be final until you finish applying with a dealership.
- Fully online experience
- No minimum credit requirement
- Customize loan terms to estimate down payment and monthly payment
- Down payment required
- Only available for Carvana vehicles
Why we chose it: Carvana has some of the best auto loans with bad credit because it offers a fast, fully online experience with no minimum credit requirements to get you funded quickly.
While Carvana doesn’t have minimum credit requirements, it does require that you make at least $4,000 per year and have no active bankruptcies. In Georgia, you must also be at least 19 years old, while the remaining states have a minimum age of 18.
Carvana can provide financing up to $80,000. Terms are available from 36 months to 72 months. The Carvana monthly payment estimator can be extremely helpful in seeing your payments with varying loan amounts, loan terms and down payments.
You can pre-qualify for a Carvana auto loan and then use Carvana’s loan calculator to see varying loan options and monthly payments for each vehicle based on your required down payment. In addition, your prequalification terms will be valid for 45 days, which is longer than the average 30 days for most lenders. Once you choose a vehicle, you can fill out the full loan application. The whole application process is online, so you may need to upload documents.
After accepting your financing terms, Carvana makes it easy to finish your transaction. They can deliver your vehicle and provide limited warranties and return policies to ensure you’re happy with the car you bought.
- Higher-than-average loan amounts
- Quick approval and funding
- Allows cosigners
- Credit union membership is required
Why we chose it: Digital Federal Credit Union is one of the best credit unions offering bad credit auto loans because it provides larger loan amounts of up to $500,000, which is significantly higher than most auto lenders.
While Digital Federal Credit Union provides loans for people with average or lower credit, you may need to score over 600 to qualify for the best loan terms. You must also make at least $6,000 annually and have a maximum of 60% debt-to-income ratio. You will not qualify if you have had an active bankruptcy within the previous 12-24 months.
Digital Federal Credit Union’s loan terms are extremely flexible, ranging between 12 - 84 months It also offers non-conventional terms, such as 65 months. You do have to be a credit union member to take advantage of these loans.
Pre-qualification is available for Digital Federal Credit Union auto loans. If you apply for refinancing, you can receive rate estimates upon pre-approval. You can finish your auto loan application fully online. Online applications can generally be decided instantly, but receiving a check in the mail may take 2-3 days after closing. You can use the funds anywhere to buy a car, which makes Digital Federal Credit Union one of the best lenders for private-party auto loans for bad credit.
Digital Federal Credit Union also stands out for its interest rate discounts. Credit union members receive a 0.50% discount, and applicants who drive energy-efficient vehicles will receive an additional 0.25%.
- Largest selection of used cars
- Low minimum loan amounts
- Three days to find a better loan offer
- Only available for cars sold through CarMax
- Not available in some states
Why we chose it: CarMax is the largest used-car retailer in the United States and doesn't have a minimum credit score requirement for car loans.
The company typically has loan offers that can work for most credit histories. However, CarMax is not available in Alaska, Arkansas, Hawaii, Montana, North Dakota, South Dakota, Vermont, West Virginia or Wyoming and their loans are only available for cars purchased from CarMax.
CarMax minimum loan amounts are as low as $500, which is extremely beneficial to people who don’t need to borrow much money. Its loan terms are fairly average, ranging between 24 and 72 months.
You can prequalify for a CarMax loan to avoid a hard pull on your credit report. Full applications can be completed online, over the phone or in person at a CarMax location, with most applications being decided within a few minutes. After you receive your funding, borrowers can take advantage of CarMax’s Three-Day Payoff Program, which allows you to replace your funding with another loan if you find better terms elsewhere. You can choose your payment schedule by making your first payment on any day within 45 days of closing on your loan.
Other bad credit auto loans we considered
While the lenders listed below didn’t quite meet our standard of excellence, they are still good choices for bad credit auto loans.
- Allows cosigners
- Provides online car-buying services
- Apply online, over the phone, in Consumers Credit Union branches or at participating dealerships
- Credit union membership required
- No rate discounts if you use the car-buying service
Consumers Credit Union provides auto financing and a wide array of rate discounts. However, you must be a member of Consumers Credit Union to receive funding, and you won’t be able to take advantage of rate discounts if you use the institution’s car-buying service.
- Tailored to those with bad credit
- Get assistance from a lending specialist
- Quick application process
- Refinancing only
iLending provides auto refinancing for people who have a credit score of at least 560. However, it doesn’t provide traditional loans, so you won’t be able to use the funds to purchase a new or used vehicle.
- Compare multiple loan options at the same time
- Fully online application
- Allows cosigners
- Not available in Alaska or Hawaii
- No customer service is available on the weekends
myAutoloan allows you to prequalify for multiple lenders and compare loan offers with one prequalification application. Its minimum credit score requirement is 575. However, you must have a minimum annual income of $26,100, and any bankruptcies must be discharged or dismissed.
Bad Credit Auto Loans Guide
We’ve compiled the information below to help you learn how to get auto loans with bad credit. Keep reading to learn how bad credit auto loans work and how to find the best loans for bad credit.
What are bad credit auto loans?
Auto loans work similarly to other types of borrowing. You receive funding to purchase a new or used car. You then accrue interest on the amount you borrowed, and you must repay the initial amount and the interest over a specific period.
Bad credit auto loans are specifically designed to allow high-risk borrowers to receive funds to purchase a new or used car. You may have difficulty qualifying for traditional auto loans with a credit score of around 580 or lower.
While most lenders will be hesitant to give funds to someone who has faced financial difficulties, others create loans with terms that mitigate risk for the lender and allow you to borrow. For example, you might have higher interest rates or shorter loan terms. In some cases, you might have to pay higher monthly loan payments so that the lender can be reassured that they will receive their money back in a timely manner.
That said, many of the lenders listed above have favorable terms for people with bad credit. Therefore, you may still be able to find a lender that will offer you closer-to-average annual percentage rates (APRs), loan terms or monthly payments, depending on your credit history.
Watch out for aggressive sales tactics when shopping for the best bad credit auto loans. For example, some lenders may try to stipulate the need for specific insurance policies, warranties or other vehicle services. However, plenty of loans won’t require these purchases, so keep shopping.
How to get an auto loan with bad credit
Your best strategy for getting auto loan approval is to repair bad credit. However, this is a long-term strategy, and in some cases, an auto loan for bad credit could help you improve your credit by regularly making your payments on time. Below are some other things you can do to get approved for a bad credit auto loan.
Dispute incorrect information from your credit history
Before looking for a car and financing, you should check your credit report to ensure all the information is accurate. If you find incorrect information on your credit report, you can dispute it to have it removed. The Consumer Financial Protection Bureau recommends taking the following actions:
- Send a dispute letter to the credit reporting agency (CRA). Include your contact information, report confirmation number and copies of documents that support your dispute, including your credit report. Keep copies of your letter and all enclosed documents.
- Send a dispute letter to the company that reported the information. Include the same information as the dispute letter sent to the CRA.
The CRA should conduct investigations and send you updates about their findings. Removing disputed information may take up to 30 days, so you should begin this step well in advance.
Determine how much of a monthly payment you can afford
Most experts recommend that you shouldn’t spend more than 10-15% of your take-home pay on car-related expenses. This includes your car loan payment, insurance, gas, maintenance and other expenses related to your vehicle.
Car loan payments are often one of the highest expenses, so you may want to aim for a monthly payment that is no more than 10% of your take-home pay. For example, if you make $3,000 per month, you should aim to get a loan with a monthly payment that is $300 or less. Having a deep understanding of your financial situation is beneficial to getting the best loan for you, especially if you’re browsing the best auto refinance companies and have the opportunity to improve your loan terms.
Remember that lower monthly payments are not always the best option. Low monthly payments often mean longer loan terms, which means there is more time to accrue interest. In the long term, you’ll likely be paying a lot more than if you have higher monthly payments and pay your loan back more quickly. Create balance by choosing a monthly payment that is affordable but still pays back your loan as quickly as possible.
Save up a large down payment
Finding no-money-down bad credit auto loans can be extremely difficult for people with poor credit or spotty payment history. In general, you should aim to save at least 20% of a car’s value as a down payment. However, people with bad credit can increase their chances of getting approved for a loan by saving up as much as possible to exceed the minimum recommendation of 20%.
While this might take longer and cost more upfront, it will often save you money in the long run. You won’t accrue interest on your down payment amount, and you might be able to reduce your monthly payment. Even if you can afford to pay for a car in full, people with bad credit may benefit from using part of that money as a down payment and getting a loan to make responsible payments and improve their credit.
Alternatively, you could trade in your current vehicle toward your purchase. You could combine the trade-in value of your current vehicle with a down payment or simply skip the down payment if your current car holds enough value to cover it.
Consider getting a cosigner
A cosigner is someone that agrees to make payments on a loan if you don’t. They generally have better credit than the primary borrower, reducing risk to the lender and improving your approval chances. The cosigner won’t have an ownership interest in the vehicle, but they will be responsible for the debt if you can’t repay your loan. Make sure you can afford the loan before risking someone else’s credit.
Another option is to have a co-borrower. A co-borrower differs from a cosigner because they will have an ownership interest in the vehicle. However, they will also be expected to make payments instead of simply being a backup payer if you miss payments. Having a co-borrower can increase approval odds and the likelihood of getting a larger loan amount because both incomes are considered.
Do your research on different types of lenders
Many different types of lenders and financial institutions offer bad credit auto loans. However, they may vary in their loan terms and credit requirements. It’s important to understand the difference between the types of lenders so you can apply with the most beneficial lender for your situation.
Some different types of lenders may include:
- Banks and credit unions. These are direct lenders, and you may be more likely to receive a loan if you have an existing relationship with one of them. You may be able to visit a physical branch or get auto loans for bad credit online.
- Online marketplaces. You can use these to compare many different lenders and loan options with one prequalification application to ensure you’re getting the best terms.
- Online retailers. These are essentially online car dealerships, but many of them offer their own financing that can only be used if you purchase a vehicle through their website.
- Car dealerships. Dealerships work with banks and credit unions to provide financing. However, others may offer “buy here, pay here” financing that is done directly through the dealership, which is typically more expensive than other types of lending.
Some lenders may be a better fit for you. For example, if you already have a bank account that is in good standing, you may want to discuss your loan options with your banker. Similarly, a “buy here, pay here” dealership may be a last resort for people who can’t qualify for loans with better terms elsewhere.
Bad Credit Auto Loans FAQ
Who finances bad credit auto loans?
What's the lowest credit score you can get a car loan with?
Can I get a $20,000 car loan with no credit?
How We Chose the Best Bad Credit Auto Loans
We used the following criteria to choose the best bad credit auto loans and lenders:
- Credit score requirements — We chose companies that can provide loans to people with bad credit, which means they have less strict credit score requirements. Many have no credit score requirements or use other criteria to determine loan eligibility.
- Loan amounts — We preferred lenders that offered a wide range of loan amounts to ensure you can get the exact amount you need, so you aren’t forced to borrow too much and incur too much debt or borrow too little and not have enough to purchase the car you want.
- Loan terms — We looked for financial institutions with many loan terms. We liked companies that had short and long loan terms with flexible options for borrowers to negotiate and have the ability to figure out a monthly payment that works for them.
- Application process — We chose lenders with easy application processes and quick funding times. All lenders listed have a prequalification application to avoid negative hits on your credit report, and many provide same-day decisions or funding.
- Additional perks — While the loan details are the most important part of choosing a lender, it’s always great to get additional perks when borrowing. We chose some companies that included extras like rate discounts, all-in-one buying and financing, or car return policies.