Obtaining a car with poor credit.
Obtaining a car loan with poor credit can be a challenging task, similar to parallel parking a minivan or navigating the DMV. However, with the right approach, it is possible to secure a good loan despite having bad credit. Here are some steps to follow.
Compare auto loans
Check your credit report for mistakes
Before making any loan or purchase, it's crucial to check your credit and understand your current standing, advised Amy Miller, Accredited Financial Counselor and program manager at America Saves. While payment history and total debt have the greatest impact on your credit score, it's possible to have errors on your credit report that can be quickly corrected. Resolving these mistakes can improve your score and position you better for a car loan.
Increase your down payment
Having a larger down payment can offset a low credit score and secure more favorable terms for bad credit car loans. According to Yossi Levi, founder and CEO at Car Dealership Guy and a former car dealer, an incremental 15-point bump in your credit score may not make as much of a difference as having a larger down payment. Your down payment shows the lender that you have something to lose, which can help secure better terms. Additionally, as you increase your down payment, your monthly payment goes down.
The average down payment for a used car in the third quarter of 2024 was nearly 13% of the vehicle's price, and almost 14% for new cars, according to Edmunds.
Buy used at the right time
A used car loan is more likely to be approved for subprime borrowers, as it typically costs less than a new car loan.
For over a decade, Levi worked in auto sales and the majority of his work involved buyers with poor credit. He stated that business typically slows down for used-car dealers during the holiday season at the end of the year, but becomes busier during tax refund season. If you're willing to buy a car during a slower business period, you may have a stronger negotiating position.
Compare lending options
Despite your low credit score, it's crucial to compare various loan offers before settling on a deal.
An online marketplace, MyAutoloan, can assist you in comparing loan options. You can receive up to four pre-qualified offers without a hard pull on your credit until you apply for an offer.
If you need a smaller loan, CarMax Auto Finance could be a good option as it provides loans starting at $500 and has a 100% online application process with no early payoff fees.
Miller advised people to look at their local banks and credit unions for programs that cater to those with poor credit. It's a good idea to start with the financial institution you currently do business with, as you may receive some flexibility with certain loan requirements if you have a solid track record. Miller shared that when she worked at a credit union, it made exceptions for long-time members in good standing.
Meet our experts
We interviewed Amy Miller, the program manager at America Saves, and Yossi Levi, the founder and CEO at Car Dealership Guy, for this story. Amy is an Accredited Financial Counselor® with experience in auto lending with credit unions, while Yossi has over a decade of experience in subprime auto sales.
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