Thu. Oct 14th, 2021
bad credit auto loan

You need a car loan your credit score keeps getting you turned down. You need the car NOW and don’t have 6 months to a year to work on your credit so that you can get approved easier.  What should you do?

Can you get a bad credit auto loan easily?

Even though auto loan companies prefer customers with good credit, you can also find lenders who offer special loan programs for people who have bad credit. These financing options can also be known as subprime loans or bad credit auto loans.

Because there were numerous customers looking for financing with less than perfect credit, lenders simply had to provide a method to accommodate the bad credit market.

But you need to be realistic when searching for one of these loans.  Some people want to get the same rate as someone with good credit, and they end up getting scammed.  The reality of the situation is, if you have a low credit score, the banks will charge you more for financing.

That doesn’t mean you should accept anything they offer you though!  There are some bad credit auto loan companies you should avoid!

Applying for a Bad Credit Auto Loan

Keep these things in mind when you are looking for a bad credit auto loan:

  1. Car loans for bad credit are not available with all lending companies. To avoid getting rejected, you have to make sure that the lender you will be submitting your car loan application to accepts borrowers with bad credit.
  2. Each time you apply, your credit gets pulled.  This HURTS your credit.  You need to be selective in who you allow to pull your credit.
  3. Be very careful at the dealership.  They use a system that uses a “shotgun” approach to getting you approved.  I have seen a clients credit report with SEVENTY-FIVE credit inquiries in 2 months!  We helped a client SUCCESSFULLY dispute these inquiries because on her credit application she specified she would only allow up to 5 credit inquiries.  She had the finance manager sign and initial it ON THE APPLICATION.  She then had them give her a copy.  We sent that to the credit reporting agencies and said all but 5 inquiries were unlawfully done.   The car company WAS NOT AUTHORIZED to pull more than 5 times.
  4. Get approved for financing BEFORE you hit the showroom!  You can easily do that by finding a lender online. For example 1-800 FreshStart! they are a lender that specializes in helping people with poor credit obtain auto loans.

Subprime lenders generally impose higher interest rates and fees, since the risk associated with doing a bad credit auto loan is higher than working with someone with an A+ credit report.

Be wary of subprime lenders offering bad credit borrowers lower than average or the same rate as their good credit counterparts.

Usually, it’s a bait and switch scheme and the rate will usually end up much higher, even higher than most subprime lender rates.

Nevertheless, this does not mean you should settle for the first bad credit car loan offer that you see. As a borrower, you still have the right to be treated fairly. Take the time to evaluate the offer and compare bad credit car loan deals from different lenders.

If you are applying at your local dealership, take in a copy of your credit report and show it to the finance manager.  Explain to him that your credit score is low, and you don’t want to pull your credit while you are doing your research.  Ask them based on what they see on your credit report, what kind of rate and term they can offer.

Advise them, you understand that the credit report they pull will probably be a little different from the one you get as a consumer.  So you are just looking for a “ballpark” figure from them.

Be alert and know the difference between legitimate and fraudulent lending companies.

You may encounter attractive car loan deals in the market despite your bad credit which could turn out to be a scam later on. If you will not do your homework, you could end up with a problem in your hands.

Another important factor to remember is to investigate the lending company’s background and track record of service.

Is the lending company reputed to provide reasonable car loan deals? Is it a licensed lending company? Is it recognized by the government and the Better Business Bureau (BBB).

Credit Unions Are A Great Source Of Financing

When applying for a car loan or any type of loan for bad credit, it is recommended that you first check out programs offered by your local credit union.

Credit unions are more likely to offer a bad credit auto loan at a lower rate and reasonable repayment terms.  Just remember you must be a MEMBER of that credit union.

Know What Is On Your Credit Report

Before submitting an auto application, order a copy of your credit report from the three major credit bureaus to make sure that there are no errors in your report which could be pulling down your score. If you have not yet received your free report for this year, you can order it from

Many people have come to our office and offered us an explanation, most of the time they say the negative items aren’t theirs.  But unless they can provide proof.  We have to go with what the credit report says.

So its ALWAYS better to FIX the problems before you apply.  If you can’t do that, bring in PROOF of your claims.  Like the police reports you filed when you saw these fraudulent items, and the letters you have sent letting the credit reporting agencies know that your ID has been stolen and someone is using it fraudlently.

That doesn’t mean that the bank will ignore all the negative items, but it will open the door to a manual review.

Last But Not Least, Always Be Willing To Walk Away From The Car.

Some really shady dealers will say that the financing process is almost done, let you go home with the car, and 5 days later tell you they got you approved, but not at the rate they promised.

They hope that you will love the car so much you will be willing to accept the new terms.  DON’T.

You will end up with a car that you are so upside down on that you can’t refinance it later (as most smooth car salesmen will tell you to soften the blow of the inflated rate)

The conversation will go like this.  Yes, the rate is high now because of your credit, but in 6 months to a year of your working on your credit, you can find a lender to refinance the car.

First, if you don’t fix or if your credit doesn’t improve significantly, you won’t be able to refinance it.  Secondly, you will probably not have enough or ANY equity in the car.  So it won’t qualify for a refinance.

Stand firm.  They really don’t want the car back.  You can re-negotiate if you want, but always be willing to walk away and NOT become a victim of an unscrupulous car salesperson!

By Elizabeth Roberts

Liz Roberts is a Sr. Credit Analyst with Horizon Funding Group Inc. She has been in the business credit industry for 20 years focusing on bad credit business owners and start up businesses. Her background is in consumer credit and collections prior to joining the Horizon team as a credit analyst and writer.

2 thoughts on “How To Get A Bad Credit Auto Loan”
  1. I did when I was younger. I was able to get one through our local bank, but the interest was out of hand. For the next 12 months, paying that car off was a top priority!

  2. My mom was in a situation where she had bad credit but needed a car loan. She was able to go through a local dealership that allowed bad credit, but it was more of a “lease”. She was able to pay for it for 2 years and then after that she “bought” out the lease and the car was hers. Worked great!

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