Best Bad Credit Car Loans of 2020

Best ways to get the financing you need to buy a car, even with less-than-perfect credit.

For anyone currently facing that situation, we’ve created this guide to help you understand bad-credit car loans, find the best one for you, and also provide tips on how to manage them as you drive down that long road to credit recovery.

Other Lenders to Consider

Understanding How Bad Credit Can Affect Your Car Loan Odds

Poor credit scores would always mean larger monthly payments on approved auto loans. Additionally, lenders charge higher interest rates so it offsets their default rates. This is especially true for bad credit auto loans – the higher the bank’s risk in lending to people with bad credit, the higher the monthly payment will be for the interested bad credit borrower.

This table will help you understand how lower credit scores return higher interest or annual percentage rates (APRs) and higher monthly car payments.

*based on a 60-month, $20,000 auto loan at current national average rates

The better your credit score, the better your APR, which means your monthly and lifetime costs would be drastically lower.

Shopping for Car Loans When You Have Bad Credit

Buying a car, at first seems glamorous. Yet, a lot of people despise the process once the reality of the situation kicks in. Believe it or not, bargaining with dealers can get pretty tasking, even for people with amazing credit!

For those with bad credit, it’s of utmost importance to be prepared. Here are a few bad credit loan shopping tips:

Because of poor credit, always expect to pay a much higher APR. As such, don’t buy a car that’s larger or more complex than what you need daily – keep things as basic as possible. Inversely, if you need a car for a large family or a job that requires you to transport supplies and goods, make sure the car’s not smaller than you need either. Also factor in things like gas mileage, routine maintenance, and many other things depending on your personal situation. Today, most banks and credit unions even have green auto loan programs that promote the use of eco-friendly vehicles. Shoppers who buy a certified green vehicle (by the Environmental Protection Agency), specifically a “SmartWay” vehicle can receive a 0.5% discount on their interest rate for a new or used vehicle from certain banks.

After you’ve established what car you need, seek a budget. Using a car payment calculator available online, you can get an idea of how much your long-term financing and monthly payments will be, as in our example in the table above. Look at dealer websites, car magazines, newspapers, and whatever resources you can get so you’ll get a better understanding of the market value and true cost of the car you want.

Give our online calculator a try to help you determine estimated costs at various term durations. The longer your contract, the smaller your monthly payments. But keep in mind that because of interest in more payments, you will end up paying more in the long run. Most bad credit car loans have terms ranging from 24-36 months, rather than the traditional 48-60 months, to reduce risk on the lender side of things.

Lastly, remember that depending where you are, many states mandate auto insurance – yet another factor you’ll need to consider in your monthly costs and budgeting.

If you’re here, there’s a big chance you’re also trying to fix your credit. As such, you probably also know by now that you should monitor your credit report and what’s in it before you even apply for an auto loan. By law, the three major credit bureaus should provide you a free copy of your credit report once a year – just go to the industry’s annual credit report site. Make sure you’re at the correct one and that you’re never to pay for your free yearly credit report.

If you have already gotten your free copy this year and need a new one, you can buy from the three major bureaus, preferably directly from them:

• Equifax Credit Information Services
• Experian
• TransUnion Corporation

Remember to stick to your budget! Any extra amount added onto what you had already planned may end up costing you, especially since bad credit car loans have higher rates for everything.

Don’t be afraid when it comes to negotiating. While it seems intimidating, keep in mind you did all the research prior. As such, you have an idea of what a car’s really worth and what you’re willing and able to pay for it. Because of a bad credit score, you might not be able to negotiate the terms of your car loan but you’re welcome to try and negotiate the purchase price.

Again, stick to your budget. There will be a chance you’ll still be offered additional products and services before you sign your contract – the price of these add-ons aren’t included in the price quote. If you get these add-ons, it adds to your previously-agreed cost of the vehicle, raising the amount of your financing. It has a tendency to snowball and you really don’t want to find yourself surprised that the price of your monthly payments is significantly bigger than you had intended.

As with any legal document, read your contract first and understand it before you sign. After all, you know your financial situation and needs better than any lawyer or salesman. Feel free to ask questions about anything in your contract that you don’t understand. If anything makes you feel uncomfortable, do not sign it – once you do you are already legally obligated to it.

You’d want to make sure that you have a copy of the contract after the deal is made. This copy must be completely filled in with all the signatures and other necessary information. Some dealers say that they’ll mail you a copy but you shouldn’t agree to wait for it in the mail. Don’t leave the dealership without it. Keep it somewhere safe because you’ll never know when you might need it in the future.

Never miss a payment! This is especially important as you already have bad credit and know it’s a consequence of late or missed payments. One of the best ways to make sure you always pay on time is to send up automatic payments. Another is to pay more than the minimum – it helps to decrease your total interest in the long run.

If by any chance you have trouble paying the minimum, attempt to negotiate rather than not pay your lender at all. Just contact them if you think you might be late with a payment – many are willing to help! Also keep in mind that because you’re a high-risk loan, they might repossess the vehicle sooner if you miss even a single payment. Some states even allow lenders to repossess vehicles without the need to go to court.

Being a safe and smart driver doesn't only protect your kids (between 2010 and 2015, almost 50% of kids ages 8 to 14 who died in car crashes were not wearing a seatbelt) but they may lower your costs on a loan. FICO recently began a program that measures a drivers safe driving record. Additionally, poor credit scores can be worse than a DUI when it comes to shopping for car insurance.

Having a good credit score may not only affect your loan rate, but may also indirectly increase your safety a little, since you may be able to afford a more advanced, and safer car. Semi-self-driving cars like the Subaru Impreza have so many cameras and safety features, it's likely to reduce accidents over the long run. Eventually, insurance is likely to be eliminated completely, or perhaps paid by the manufacturer, as cars become more and more autonomous.

How We Picked the Best Bad Credit Auto Loans

We know that having bad credit means having a difficult time finding an auto loan and getting approved. But just because your credit isn’t great doesn’t mean you have zero chance – just make sure to broaden your search and be more patient.

A great tip is to include local banks and especially credit unions, as the latter often has more flexible lending criteria than the former. Additionally, if you have a long-standing relationship with a specific bank, they might have a better idea of your habits and ability to repay a loan compared to other potential lenders.

In the list we have on this page, we no longer considered brand-specific lenders like Honda Financial Services or Ford Credit. The best auto loan services and lenders we found provide:

Common Car-Buying Scams

Having bad credit may make you feel vulnerable and afraid when making big purchases, no matter how necessary, like a vehicle. This is especially scary when you know there are car dealers that aren’t as trustworthy, scamming people because they’re misinformed or uninformed, or taken advantage of because of their desperation to get a vehicle.

The best defense is to get educated – there are dozens of car-buying scams, but here are the most common ones that may affect people with bad credit.

Yo-yo loans

A yo-yo loan is when a dealer lets you have the car in your possession while your financing isn’t fully approved, especially if you have shaky credit and typically can’t get preapproved for a loan. In turn, you think you’ve closed on a loan, but then the dealer informs you days (or even weeks) later telling you your financing fell through. You end up pressured to take a less-favorable deal so your car won’t get repossessed.

Make sure you are preapproved before going to a dealer, or get them to show you your loan approval documents before you get your car. Do not take the car unless you see solid proof your financing has already been approved.

Co-signer scams or ‘Straw Purchase' scams

A dealer may offer and even encourage you to get someone to cosign, convincing you that you can get a much better interest rate and help your credit score because your cosigner has a solid credit history. While this is true, it is a huge risk that could potentially destroy relationships and families especially if the borrower can’t pay back the car loan and destroys the cosigner’s reputation.

Some dealers abuse this high-pressure tactic, turning it into a scam by preying on your confusion when you and your cosigner are doing the loan paperwork. Often the borrower would find out the loan is only in the cosigner’s name while the borrower’s name is absent.

If you ever feel rushed or pressured while going over paperwork, run. As previously mentioned, you should always read and understand the documents you sign. In the case of cosigning, you both need to sign the same contract – not separate ones.

The lemon ‘as-is’ car

When you look at used cars and see one labeled “as is – no warranty” be wary. Even if the dealer tries to assure you it’s fine and there are zero problems with the vehicle, it may possibly be a lemon – a car (often new) that has several manufacturing defects. It could also be a car that has previously been wrecked or flooded.

When buying a used car, find its history – check the car’s title but be wary that its been “washed” or altered to hide the fact it’s been salvaged. Try investing in a vehicle history report from CARFAX or a similar service to avoid getting a car that would break down almost immediately.

Online financing refusal

So you’ve done your research and even got preapproved for financing, but then the dealer of your choice would tell you they can’t accept online financing. Perhaps they’ll tell you they’ve had bad experiences in the past involving bouncing checks from online lenders and that they’d be more than happy to offer you their in-house financing. Chances are, it would be at a higher APR compared to the one you’ve got with your online lender.

In such situations, just walk away. The only time it’s acceptable to use the dealer’s in-house loan instead of the one you’ve already secured is when the former’s terms are better than the latter’s – not worse.

FAQ

Credit scores play a fundamental role in the types of car loans, terms and interest rates that individuals receive. Here is some direction on some frequently asked questions that individuals with bad credit, no credit or limited down payments tend to ask when seeking car loans. The information provided can be used to guide you as you navigate through the car loan process.

Getting a Car Loan with Bad Credit

Here are common questions we encounter when trying to obtain a car loan with bad credit. It also covers special circumstances such as when you’re trying to obtain a car loan with no income, no money down, and even bankruptcy.

Interest Rates on Car Loans Based on Credit Score

Interest rates are dependent on an individual’s credit scores and where the loan is obtained. This section offers information on the types of interest rates consumers can received based on their financial standing.

Choosing the Right Car Loan Company

Every company is different and for this very reason offers car loans with terms and conditions that are ideal for their company, and that are befitting for the financial standing of their client with or without a cosigner. With that being said, you may receive loans with better terms from another company. This section provides information on how to obtain a loan from the right institution.