Getting a car with poor credit is possible, but it costs more and requires a different process than traditional financing
A low credit score does not lock you out of car ownership. Lenders who specialize in subprime auto loans — loans to borrowers with credit scores below 620 — exist specifically to serve this market. The trade-off is real: you will pay a higher interest rate, make a larger down payment, and face stricter terms. But the mechanics are straightforward: you find a lender willing to take the risk, prove you have income, put money down, and sign a contract that gives the lender the right to repossess the car if you miss payments.
The key difference from prime lending is that subprime lenders focus less on your credit history and more on your current ability to pay. They want to see proof of income, a job you have held for at least a few months, and enough cash for a down payment — typically 10 to 20 percent of the car's price. Some lenders also require a co-signer with better credit, or they may install a GPS tracker and payment interrupt device that disables the car if you fall behind.
Key Takeaways
- Subprime auto lenders focus on current income and down payment size rather than credit score alone, making approval possible even with poor credit history.
- Interest rates for subprime loans typically range from 15 to 29 percent depending on your credit score, down payment, and the lender, making the total cost of the car significantly higher than for borrowers with good credit.
- A larger down payment — 15 to 20 percent of the car's price — reduces the lender's risk and often lowers your interest rate.
- Buy-here-pay-here dealerships and credit unions may offer better terms than traditional subprime lenders, but require more research to find and compare.
- Missing even one payment can trigger repossession, and the car remains collateral for the entire loan, so budget carefully before committing.
Where subprime auto lenders operate and what they require
Subprime auto loans come from three main sources: traditional banks and credit unions that have subprime divisions, independent finance companies that specialize in high-risk lending, and buy-here-pay-here dealerships that lend directly to buyers and hold the title themselves.
Traditional banks and credit unions typically require a credit score of at least 550 to 600, proof of income (recent pay stubs or tax returns), a valid driver's license, proof of insurance, and a down payment of 10 to 15 percent. They run a hard inquiry on your credit, which temporarily lowers your score by a few points. Independent finance companies have lower credit score minimums — sometimes none at all — but charge higher interest rates and may require a co-signer. Buy-here-pay-here dealerships often require no credit check and accept cash down payments as small as $500 to $1,000, but they charge the highest interest rates and require weekly or bi-weekly payments in person.
The process process is faster than prime lending: most subprime lenders can approve or deny you within 24 to 48 hours. You will need to bring documents in person or upload them online. The lender will verify your income by contacting your employer or reviewing recent pay stubs, and they may call your references.
How interest rates and total cost work for subprime borrowers
A subprime auto loan interest rate depends on your credit score, the size of your down payment, the age and mileage of the car, and the lender's risk appetite. Rates typically range from 15 to 29 percent for borrowers with credit scores below 620. For comparison, borrowers with good credit (scores above 740) pay 4 to 8 percent.
The difference in total cost is substantial. On a $15,000 car financed over 60 months, a borrower with a 20 percent interest rate pays roughly $4,900 in interest alone — nearly one-third of the car's price. The same car at 6 percent interest costs about $2,400 in interest. This is why down payment size matters: putting down $3,000 instead of $1,500 reduces the amount you finance and can lower your rate by 1 to 3 percentage points.
Some subprime lenders also charge origination fees (typically 2 to 5 percent of the loan amount), documentation fees, or GPS device fees if they install tracking. Read the full loan agreement before signing to understand all costs.
Buy-here-pay-here dealerships versus traditional subprime lenders
Buy-here-pay-here dealerships are independent car lots that finance their own sales. They do not report to credit bureaus, do not require a credit check, and do not use traditional underwriting. Instead, they assess your ability to make weekly or bi-weekly payments and may call your employer to verify employment.
The advantage is speed and accessibility: you can walk in, pick a car, and drive off the same day if you have cash for a down payment. The disadvantage is cost and control. Interest rates at buy-here-pay-here lots often exceed 25 percent, and the dealership retains the title and can repossess the car when ready if you miss a single payment. Many also require you to make payments in person at their location, which is inconvenient if you move or change jobs. Some install GPS trackers and starter interrupt devices that disable the car remotely if a payment is late.
Traditional subprime lenders through banks or finance companies offer lower interest rates (usually 15 to 22 percent), allow you to make payments online or by mail, and do not typically install tracking devices. They also report your payment history to credit bureaus, so on-time payments can gradually improve your credit score. The trade-off is that they require more documentation and a longer approval process.
How to lower your interest rate and improve your terms
A larger down payment is the single most effective way to lower your rate. Putting down 20 percent instead of 10 percent can reduce your interest rate by 2 to 4 percentage points. If you have $3,000 saved, use it as a down payment rather than spreading it across the first few months of payments.
A co-signer with better credit can also lower your rate. If a family member or friend with a credit score above 650 co-signs the loan, the lender may offer you a rate 3 to 5 percentage points lower. The co-signer is legally responsible for the loan if you default, so choose someone you trust and make sure they understand the obligation.
Shopping across multiple lenders is essential. Subprime rates vary widely, and getting quotes from three to five lenders can reveal differences of 5 to 10 percentage points. Most lenders allow you to get a rate quote without a hard credit inquiry, so you can compare before committing. Credit unions often offer better rates than banks or independent finance companies, so check whether you are a member or can join one.
Waiting a few months to improve your credit score can also help. Paying down existing debt, correcting errors on your credit report, and making all payments on time can raise your score by 20 to 50 points in three to six months, which may move you into a lower rate tier.
What happens if you miss a payment or cannot afford the loan
Subprime auto loans are secured by the car itself, which means the lender can repossess it if you fall behind. Most lenders allow a grace period of 10 to 15 days after the due date, but some — particularly buy-here-pay-here dealerships — can repossess after a single missed payment. Once repossessed, the car is sold at auction, and you are responsible for the difference between the sale price and what you still owe on the loan, called a deficiency judgment.
If you know you cannot make a payment, contact the lender when ready. Some subprime lenders offer loan modification, payment deferral, or forbearance, which temporarily reduces or pauses your payment. These options are rare but worth asking about. Repossession damages your credit score by 100 to 150 points and stays on your report for seven years, so avoiding it is worth negotiating hard.
If you cannot afford the loan after signing, your options are limited. You can try to sell the car privately and use the proceeds to pay off the loan, but you will owe the difference if the sale price is less than what you owe. You can also try to refinance with a different lender, though this is difficult when ready after purchase. The best protection is to budget carefully before signing and to choose a car and loan term you can genuinely afford.
Comparing your options: traditional lenders, credit unions, and alternative routes
| Lender Type | Credit Score Minimum | Typical Interest Rate | Down Payment | Approval Time | Repossession Risk |
|---|---|---|---|---|---|
| Traditional bank subprime division | 550–600 | 15–22% | 10–15% | 2–5 days | Standard (10–15 day grace) |
| Credit union | 500–580 | 14–20% | 10–15% | 3–7 days | Standard (10–15 day grace) |
| Independent finance company | None required | 18–29% | 15–20% | 24–48 hours | Standard (varies by lender) |
| Buy-here-pay-here dealership | None required | 22–29% | $500–$2,000 | Same day | High (can repossess after one missed payment) |
Credit unions are often the best option for subprime borrowers because they charge lower rates than banks or independent lenders and have more flexible underwriting. You must be a member to borrow, but many credit unions allow you to join if you live or work in their service area or have a family member who is already a member. Some credit unions also offer credit-builder loans, which help you improve your score while you borrow.
If you cannot find a subprime loan you can afford, consider alternatives: buying a used car with cash (even if it is older), using a co-signer, waiting a few months to improve your credit, or using public transportation or ride-sharing temporarily. These options avoid the high cost and repossession risk of subprime lending.
Frequently Asked Questions
Can I get a car loan with a credit score below 500?
Yes, but your options are limited to independent finance companies and buy-here-pay-here dealerships, both of which charge the highest rates (22 to 29 percent). You will also need a larger down payment (15 to 20 percent) and possibly a co-signer. A credit union may also work if you can join one.
What if I do not have a down payment?
Some buy-here-pay-here dealerships accept very small down payments ($500 or less), but most traditional lenders require at least 10 percent. If you cannot save a down payment, consider delaying the purchase, asking family for help, or exploring whether a credit union offers a credit-builder loan that could help you save while improving your credit.
Will getting a subprime auto loan hurt my credit score?
The hard inquiry and new account will lower your score by 5 to 10 points initially, but on-time payments will raise it over time. After 12 to 24 months of on-time payments, your score may improve by 50 to 100 points, which can help you refinance at a better rate or may have access to for other credit later.
What should I do if the lender wants to install a GPS tracker or starter interrupt device?
These devices are legal and common in subprime lending, particularly at buy-here-pay-here dealerships. Understand how they work before signing: know when the lender can disable the car, what happens if you are stranded, and whether there are fees to remove the device. Some lenders use them only as a backup if you fall behind; others use them routinely.
Can I refinance a subprime auto loan to a lower rate?
Yes, but usually not when ready. Most lenders require you to make 12 to 24 months of on-time payments before you can refinance. After that period, if your credit score has improved, you may may have access to for a lower rate from a different lender. Check your loan agreement for any prepayment penalties before refinancing.