Bad Credit Auto Financing Options

December 28th, 2015 by

Getting a car with poor credit is tough, but not impossible; it just takes some research and a little extra elbow-grease. You aren’t just locked into getting a bad credit car loan one way, either. You do have some options out there. A common way is to find bad credit auto dealers, which are dealerships that specialize in financing consumers who have bad credit. If that doesn’t work for you, another option is finding a sub-prime lender. Which is an independent company that specializes in auto-financing for those who have bad credit. Your bank or credit union is another option; credit unions being the more lenient of the two.

Before you begin thinking about your options though, you need to understand what you are getting yourself into, and if you are even eligible for one.

What’s a Bad Credit Auto Loan?

A bad credit auto loan is essentially just like the other loans out there; you find a lender, apply for a loan, and if you are eligible you get a loan/new car. But in this case, the interest rate is much higher. While typical car financing will have around a 5% interest rate for those with good credit, the interest rate for a bad credit consumer could be anywhere from 13% to 19% depending on where you live. It’s important to take this into account when looking for financing options, because the interest rate will be costly.

Am I Eligible?

You need to find out if you are even eligible; it’s important. Even if your credit score isn’t stellar, that doesn’t mean you should go looking for a bad credit car loan. Poor credit is considered to be approximately anywhere between 300 to 550, and subprime credit is between 550 to 620. If you fall anywhere in these categories, you should apply for a bad credit car loan. If you don’t, you should avoid applying. Why? Because you would be getting an interest rate that is much higher than you would if you went for standard financing on a car. Also, it’s important to note that if your credit score is too low, you won’t get approved.

Dealing Directly With Dealerships

There are dealerships out there that specialize in bad credit financing, you just need to look for them. They will generally have a person at the dealership (or connections) that specialize in dealing with consumers who have bad credit. This bad credit auto dealer is somebody who specializes in finding the car that you can afford, not one that you want. With this option, you will be putting your faith in the specialist’s hands to find you a car that will be able to reliably get you down the road.

While they will give you the car that you can afford, that doesn’t mean you can’t bargain for less. If you get a car that is $18,000 with a sun roof, but there is also one eligible for $15,000 that runs just as well, go for the lower costing car. Why? Because a lower cost means a smaller loan, and that means less interest paid in the long run.

You would think you are stuck getting a used car, but you can get a new one as well. There are different bad credit auto dealers out there that sell used or new cars, and they both have ups and downs. A newer car is, obviously, going too cost more than a used car. So, if you are looking to get on the road at a cheaper price, try and find a used dealership. If you want a car that will be more expensive, but probably last you longer than a used car, then try and find a new car dealer.

Dealers will typically advertise if they have bad credit auto financing, so make sure you look for signs like “Your job is your credit!” or “Bad credit? No problem!”

Whether you choose to go to a new or used car dealer, you need too make payments on time. It’s much easier for the dealership to repossess your car than it is for somebody to repossess a house; they know it and you should know it. If you don’t make your payments on time, chances are they won’t be too lenient when it comes to letting you drive around. This is because you have bad credit, and to them, letting you borrow the car is a risk factor.

It’s perfectly reasonable for them to use the car as collateral, so make sure your payments get in on time and show them you are financially responsible too avoid any issues.

Subprime Lenders

Sub-prime lenders are another route you could take, and instead of dealing directly with the dealership, you would take out a loan through them. Subprime lenders specialize in lending to consumers who have bad credit history. Much like dealerships, you are dealing with high interest rates while paying back a loan and the possibility of repossession. Unlike dealerships, a subprime lender might be more willing too work with you. I’m not saying dealerships are stubborn, but when you are looking for a subprime lender they are expecting you too walk through that door, it’s what they do. You are bypassing the dealer and going straight to the source in order to apply for a subprime loan directly.

What these subprime lenders do is sit you down and discuss your credit score, they then show you some options and talk to some dealers they are affiliated with. Sometimes this is good, sometimes this is bad. A subprime lender can act as a helpful middleman, or they can cut you a bad deal. Typically, these lenders are considered a last resort, and most people would rather deal with the dealerships. With these types of lenders, it’s important to have both your eyes and ears open, and if something sounds fishy then call it off. It also wouldn’t hurt to have another set of eyes and ears with you for another reason.


Having that second person there is a great way to make sure you get the best deal possible, and with nothing extra tacked on. This person is also a great way to help ensure you get a loan from a subprime lender or financing from a dealer. They can be your co-signer if need be, but this needs to be taken seriously. Only have them be a co-signer if you are sure you will be able to endure the duration of the payment plan. If you do not pay off the loan fully or miss payments, then you are putting the co-signer at risk. Since they put their reputation on the line for you, their credit score will also suffer. They may even be required to pay off the rest of your loan.

Banks/Credit Unions

Even if you don’t think it will work, check with your bank. The banks understand your financial habits better than anyone, and you may be able to get a loan from them. Even more lenient than a bank is a credit union; their qualifications aren’t nearly as high for someone looking for a loan, and are even easier on members. I’m not saying it’s going to be a walk in the park, but it’s worth a shot to at least check with your bank.

There are plenty of options out there for bad credit auto-financing, and you may need to be a little more alert and work harder than a consumer with good credit, but it’s possible to get a car with bad credit. Dealerships are popular because they are able to do most of the work for you, and if that isn’t an option you can always look online for one of the numerous subprime lender sites out there. A bank or credit union might be a little tough, but it’s worth a shot; and only consider a co-signer if you know for a fact you will not compromise their credit.

Don’t feel locked into one route, it’s up to you, and you can explore all of your options before making a decision.