Bad Credit Auto Loans

Getting an auto loan with bad credit (scores below 600) is possible — but it costs significantly more. Here's how to get approved, minimize the damage, and avoid the traps that keep people in high-rate loans indefinitely.

What "Bad Credit" Means for Auto Rates

Auto lenders price risk aggressively. Average auto loan rates by credit tier:

On a $20,000 used car over 60 months, the difference between 7% and 25% is roughly $180/month and $10,800 in total interest. These numbers justify spending time on rate shopping.

Get Pre-Approved Before the Dealership

The single most important step for bad-credit buyers: get pre-approved from a credit union or bank before you set foot in a dealership. Dealers make money on financing, and without a competing offer you have no leverage. Walking in with a pre-approval from your credit union at 18% APR lets you decline the dealer's 24% offer.

Apply at: your existing bank or credit union, Capital One Auto Finance (accepts bad credit), Carvana (online, competitive for subprime), LightStream (only for credit scores 660+).

Buy a Less Expensive Car

At 22% APR, a $25,000 loan costs $8,200 in interest over 5 years. The same rate on a $12,000 car costs $4,000. A less expensive car solves the affordability problem that high rates create. Buy a reliable used car for under $15,000 and refinance in 12–18 months once your credit has improved.

Avoid Buy Here Pay Here Dealers

Buy Here Pay Here (BHPH) dealerships offer instant financing with no credit check — and APRs of 25–35%. They often don't report your positive payments to the bureaus, so you don't even build credit while paying an astronomical rate. Avoid them. If you need a car and your credit is too poor for a bank loan, save for a cheap cash car while working on your credit.

Refinance After 12 Months

The strategy for bad-credit auto loans: accept the high initial rate, make every payment on time for 12 months, let your score improve, then refinance with a better lender. Many borrowers drop their rate by 5–10 percentage points through refinancing after a year of on-time payments.

Set a calendar reminder: 12 months after getting the loan, pull your credit score and apply for refinancing at your credit union or through OpenRoad Lending, RateGenius, or AutoPay.

See also: How to Improve Your Credit Score | Loan Affordability Calculator