Getting a car with low credit is possible, but it costs more and requires different lenders
A low credit score does not lock you out of car ownership. Banks and credit unions will still lend to you, but they charge higher interest rates to offset the risk. Dealerships that specialize in subprime lending (lending to people with poor credit) exist specifically for this situation. The real cost difference comes from the interest rate you pay over the life of the loan — a person with a 750 credit score might pay 4% annual interest, while someone with a 550 score might pay 12% or higher on the same car.
Your path forward depends on whether you have a down payment saved, whether you have a co-signer, and how much you can afford monthly. Each choice changes which lenders will work with you and what rate you will receive.
Key Takeaways
- Credit unions often offer lower rates to members with low credit than banks or buy-here-pay-here dealerships do, so joining one before you shop can save you thousands in interest.
- A down payment of 10% to 20% of the car's price makes lenders more willing to work with you and lowers the interest rate they offer.
- Subprime dealerships approve almost everyone but charge the highest interest rates and may require a co-signer or GPS tracking device on the vehicle.
- Your monthly payment depends on the loan term (36 to 72 months is typical), the interest rate, and the car price — longer terms mean lower monthly payments but more total interest paid.
- Getting pre-approved by a lender before you visit a dealership tells you what rate you actually may have access to for, rather than letting the dealership negotiate on your behalf.
Understanding how interest rates work with low credit
When you borrow money to buy a car, you pay back the loan amount plus interest. The interest rate is a percentage of what you borrowed, charged annually. A $15,000 car loan at 6% interest costs you roughly $2,400 in interest over five years. The same loan at 12% interest costs roughly $4,800 — double the amount. Your credit score is the main factor lenders use to decide what rate to charge you.
Credit scores range from 300 to 850. Scores below 620 are considered subprime, meaning lenders see you as higher risk. Scores between 620 and 660 are near-prime. The lower your score, the higher the rate you will be offered, because statistically you are more likely to stop making payments. This is not punishment — it is how lenders price risk. A person with a 550 score who stops paying costs the lender money, so they charge higher rates to everyone in that group to cover those losses.
You cannot negotiate your credit score, but you can shop around. Different lenders price risk differently. A credit union might offer 10% to a person with a 580 score, while a buy-here-pay-here dealership might offer 15% to the same person. Getting pre-approved by multiple lenders before you shop for a car shows you the actual rates available to you.
Where to look for car loans with low credit
You have three main categories of lenders: banks, credit unions, and subprime dealerships. Banks are the most restrictive — many will not lend to anyone below a 620 credit score. Credit unions are often more flexible, especially if you have been a member for a while. Subprime dealerships approve almost everyone but charge the highest rates and may require additional conditions like a co-signer or a GPS tracking device on the car.
Start with a credit union if you are already a member. Call the lending department and ask what credit score they require for auto loans and what rate they would offer someone with your score. If you are not a member, you may be able to join — many credit unions have open membership or require only that you live or work in a certain area. Joining takes 15 minutes and costs nothing.
If credit unions do not work, contact banks in your area. Ask directly whether they lend to people with your credit score. Many will say no over the phone, which saves you a wasted process. If a bank says yes, ask for a pre-approval letter that shows the rate and loan amount you may have access to for. This letter is good for 30 to 60 days and you can take it to any dealership.
Subprime dealerships are the last resort, not the first. They advertise "bad credit, no problem" and "we finance everyone." They do approve almost everyone, but the interest rates are significantly higher — often 15% to 29% — and they may require a co-signer, a larger down payment, or allow them to install a GPS tracking device that can disable the car if you miss a payment. Use them only if banks and credit unions have turned you down.
How a down payment changes your options
A down payment is money you give the dealership upfront, reducing the amount you need to borrow. If a car costs $12,000 and you put down $2,000, you borrow $10,000 instead. Down payments matter because they reduce the lender's risk — if you stop paying, they can repossess the car and sell it. A larger down payment means they lose less money if that happens, so they are willing to lend at a lower rate.
For someone with low credit, a down payment of 10% to 20% of the car's price makes a real difference. On a $12,000 car, that is $1,200 to $2,400. If you can save that much before you shop, you will may have access to for better rates and more lenders will work with you. If you cannot, be honest about it — do not borrow the down payment from someone else, because then you are paying interest on two loans.
If you have no down payment, you can still get a loan, but expect higher interest rates and fewer lender options. Some subprime dealerships offer zero-down financing, but the interest rate will reflect that risk.
What happens when you get pre-approved
Pre-approval is when a lender reviews your credit and finances and tells you in writing what they will lend you and at what rate. It is not a may provide — the final approval still depends on the specific car you choose and the dealership's paperwork — but it is close. Pre-approval takes one to three business days and costs nothing.
To get pre-approved, contact a bank or credit union and ask for an auto loan pre-approval. You will need to provide your Social Security number, proof of income (a recent pay stub or tax return), proof of residence (a utility bill), and your driver's license. The lender will pull your credit report and run a background check. They will then tell you the maximum loan amount and the interest rate you may have access to for.
Pre-approval is valuable because it tells you what you can actually afford before you walk into a dealership. Dealerships make money by negotiating the rate up — if you arrive without pre-approval, the dealer's finance manager will shop your loan to multiple lenders and present you with the highest rate any of them will accept. With pre-approval in hand, you know the real rate and can walk away if the dealer tries to charge you more.
Bring your pre-approval letter to the dealership. Tell the salesperson you are pre-approved and show them the letter. Some dealerships will match or beat the rate to earn your business. Others will try to convince you to let them shop your loan anyway, claiming they can do better. In most cases, they cannot — they are trying to make more commission.
Choosing between new and used cars
With low credit, a used car is usually the better choice. New cars lose value quickly — a $25,000 new car is worth $18,000 after three years. If you finance a new car and then lose your job or have an emergency, you could owe more than the car is worth. Used cars hold value better and cost less upfront, so the loan is smaller and the interest costs less.
Buy a used car that is five to ten years old, has been well maintained, and has a clear title (meaning no liens or accidents on record). Have a mechanic inspect it before you buy — this costs $100 to $200 and can save you thousands in repairs. Avoid cars with salvage titles or flood damage, even if they are cheap. Those problems follow the car and make it hard to sell later.
The price range that makes sense depends on your down payment and monthly budget. If you have $2,000 down and can afford $250 per month, you can finance roughly a $10,000 to $12,000 car at a reasonable interest rate. If you have no down payment and can only afford $150 per month, you are looking at a $5,000 to $7,000 car. Use an online loan calculator to see what monthly payment a specific price and interest rate will create.
What to expect during the loan process
Once you have found a car and agreed on a price, the dealership will submit your loan process to the lender you chose (or to multiple lenders if you did not get pre-approved). The lender will verify your income, check your employment, and confirm the car's value. This takes three to five business days.
During this time, the dealership may ask you to sign a conditional purchase agreement, meaning you can drive the car while the loan is being finalized. Do not assume the loan is approved until you receive written confirmation from the lender. If the lender turns you down, you will have to return the car.
Once the loan is approved, you will sign the final paperwork at the dealership. This includes the promissory note (your promise to repay), the security agreement (giving the lender the right to repossess if you do not pay), and the title transfer. The lender will send the title to the lienholder (the bank or credit union), and you will receive a copy. Keep this copy in a safe place.
Your first payment is usually due 30 days after you sign. Set up automatic payments from your bank account — this ensures you never miss a payment, which is critical when rebuilding credit. Missing even one payment can trigger repossession and will damage your credit further.
How to rebuild credit while paying off the car
A car loan is an opportunity to rebuild your credit if you handle it correctly. Every on-time payment is reported to the credit bureaus and improves your score. After 12 to 24 months of on-time payments, your score will rise noticeably, and you may be able to refinance the car at a lower rate.
Make your payment on time every single month, even if it is a struggle. If you think you will miss a payment, call the lender when ready — many will work with you on a late payment if you ask before it is due, rather than after. Missing a payment by even one day damages your credit and can trigger late fees and repossession.
Do not take out other loans or credit cards while you are paying off the car. Each new credit inquiry and new account lowers your score temporarily. Focus on paying the car loan on time and paying down any existing credit card balances. After the car is paid off, your credit will be noticeably better, and you will may have access to for lower rates on future loans.
Frequently Asked Questions
Can I get a car loan if I have no credit history?
Yes, but it is harder than having low credit. Lenders prefer a credit history, even a damaged one, because it shows how you have handled debt. If you have no history, bring proof of stable income and employment, and consider getting a co-signer with better credit. Credit unions are often more flexible with no-credit applicants than banks are.
What is a co-signer and should I get one?
A co-signer is someone who signs the loan with you and agrees to pay if you do not. They are usually a family member or close friend with better credit. A co-signer can help you get approved and receive a lower rate, but they are legally responsible for the debt. Only ask someone to co-sign if you are certain you can make every payment — if you do not, their credit suffers too.
What if I cannot afford the monthly payment?
Do not sign the loan. Go back and look at cheaper cars or save a larger down payment. A monthly payment you cannot afford will lead to missed payments, repossession, and further credit damage. It is better to drive a cheaper car and keep your finances stable than to overextend yourself.
Can I refinance the car loan later at a better rate?
Yes, after 12 to 24 months of on-time payments, your credit score will improve and you can refinance at a lower rate. Contact your current lender or shop around with banks and credit unions. Refinancing can save you hundreds of dollars in interest, but only if your new rate is significantly lower — make sure the savings outweigh any refinancing fees.
What happens if I lose my job and cannot make payments?
Call your lender when ready. Explain the situation and ask about forbearance or a payment deferment, which temporarily reduces or pauses your payments. Do not ignore the problem — lenders are more willing to work with you if you contact them before you miss a payment. If you cannot reach an agreement, the lender can repossess the car, and you will still owe the difference between what they sell it for and what you owe.