Regardless of your credit score, there are ways to get the loan you need, when you need it most and finance a car — sometimes with little or no money down. Bad credit car loans differ from conventional car loans and are designed to work well for individuals with less than perfect credit, no credit or even poor credit.
The 4 Best Bad Credit Auto Loans
- My Auto Loan: Best APR
- Bad Credit Loans: Best marketplace lender
- RoadLoans: Most flexible
- Carvana: Best for all-in-one financing
|Lender||APR||Min. Loan||Max. Loan||Terms|
|My Auto Loan||Starting at 2.99%||$8,000||$100,000||24–84 months|
|Bad Credit Loans||5.99%–35.99%||$500||$5,000||3–36 months|
|Carvana||Starting at 3.90%||N/A*||N/A*||24–76 month|
*Carvana bases its loan amount on the price of the vehicle financed.
What is a Bad Credit Auto Loan?
Bad credit car loans are issued by subprime lenders, also referred to as “second-chance” lenders. If a borrower doesn’t qualify for a conventional auto loan due to poor credit history, then these lenders offer an alternative option. Bad credit loans have a higher tolerance and more flexibility for higher-risk borrowers in the eligibility criteria. However, they aren’t without their disadvantages.
Bad credit loans often come with higher interest rates. Yet, if you improve your credit score and pay your loan on time, then you may be able to negotiate a better APR later. Refinancing your car loan can also help lower your monthly loan payments.
One caution, though: your car acts as collateral to ensure that your loan is repaid.
Bad Credit Auto Loan vs Conventional Auto Loan
A bad credit loan is issued by a “subprime” lenders to borrowers with less than stellar credit. A conventional auto loan is just the opposite and is issued by prime lenders. This includes your financial institution, for example. Conventional auto loans are based on your credit history, your income and more. So, conventional auto loans offer a lower interest rate to qualified borrowers.
Many conventional lenders require a minimum credit score of at least 659 and sometimes higher. The higher your score, the better your APR and the more likely you’ll qualify, assuming everything else checks out. If your credit history is blemished, though, then a bad credit car loan might be your best option.
Bad Credit Auto Loan vs Personal Loan
A personal loan can also help you finance a car. Like conventional auto loans, they are dependent on your credit history. So, the higher your credit score, the better your chances of qualifying for a loan. A personal loan may still require collateral, though.
Bad Credit Auto Loan vs Credit Union Auto Loan
Sometimes belonging to a credit union can improve your chances of getting financed. You may be able to get a better rate and have more flexibility — even if other conventional lenders consider you as too high-risk. Credit unions are more positioned to serve you rather than a board of directors or stockholders. So, many often offer more flexibility with auto loan financing.
Some credit unions may still require a minimum credit score to help determine creditworthiness, but that’s not always the case. Some credit unions do not have minimum credit score requirements for their members. Hence, it might be a good idea to check them out.
The 4 Best Bad Credit Auto Lenders
My Auto Loan: Best APR
My Auto Loan offers a variety of auto loans for consumers including for new and used cars, auto refinancing, private party car loans, lease buyouts, and motorcycles.
It finances with terms ranging from 24 to 84 months and publishes a handy rate table that gives you a clearer picture of which rates you might expect. The lowest APRs begin at 2.89% for auto refinancing, 3.99% for new cars, and 4.24% for used cars. However, rates can change based on your credit situation and the market.
Bad Credit Loans: Best marketplace lender
Though not specifically a lender, Bad Credit Loans is a company that connects you with a network of lenders based on your needs and creditworthiness. APRs vary by lender, but start at 5.99% and go up to 35.99%.
You can borrow as little as $500 or up to a maximum of $5,000 with terms ranging from 3 to 36 months. So, there’s some flexibility when you don’t need a lot. The online form is fast and easy to use. If a loan is approved, you can generally access funds the next business day.
RoadLoans: Most flexible
RoadLoans does not specify its rates for car loans because each borrower and situation are unique and loans are customized according to your credit score, credit history, income and more. However, it offers loans between $5,000 and $75,000 based on your qualifying factors. Terms range between 24 months and 76 months. Determining whether you qualify with this lender is easy. Simply complete the online form and you’ll be notified of your eligibility details afterward.
Carvana: Best all-in-one financer
Carvana is a different kind of auto financing company that cuts out the middle man. The lender works with all credit scores and looks at the broader picture of your finances and credit history. However, instead of approving you for a specific loan amount, it approves you for financing one of the cars offered through the Carvana network, which is listed on its website. Even if the car isn’t local to you, the lender can ship it to the nearest Carvana vending machine, which is a nice option and gives you an expanded selection of cars and trucks to choose from.
Auto navigator is an online, AI tool that helps you find a car from a network dealer and then walks you through the application process to pre-qualify for financing. Finance restrictions apply, though. You must apply for a loan of at least $4,000. APR is determined by creditworthiness, but available terms range from 24 to 84 months, allowing you to personalize a loan payment that makes the most sense for your budget.
The Final Word
Although having bad credit doesn’t preclude you from financing a car, it does mean that you’re going to pay more in interest for your loan. It might be best to wait and pay down your debt to raise your FICO score and qualify for better rates. However, life happens and this isn’t always an option. Cars break down and sometimes the cost of repairing them outweighs the cost of replacement. In these cases, a bad credit car loan might be a good option to keep you on the road.