2021 saw US car sales rise 3.4% from 2020, and 2022 looks to have even more sales. The sharp decline in auto sales in 2020 wasn’t due to a lack of demand, but a lack of supply.

Because of the Covid-19 pandemic, manufacturers of automotive parts had to shut down production for months. As a result, car manufacturers are still trying to catch up to the demand for new cars.

If you’re looking to purchase a new or used vehicle, you may be wondering how to find car loans with bad credit. While it is more difficult to get approved for a car loan with bad credit, there are still ways to get a good deal.

Car loan servicers take many factors into account when considering someone for financing. Your credit score is a big factor, but there are other important things they look at as well.

Even if someone with less than stellar credit gets approved for financing, they may pay more over time due to a higher interest rate. In this article, we’ve covered some things you can do to avoid paying too much interest.

If you have bad credit, keep reading to find out everything you need to know about finding car loans!

1. Why Your Credit Score Matters

Credit scores range from 300 to 850, with 300 being the worst possible score. Lenders use your credit score to gauge how likely you are to repay your loan in full.

Your credit score is the result of your payment history, credit utilization, and the kinds of credit you have. Typically, lenders rank scores in the following ways:

  • 300-579: Poor
  • 580-669: Fair
  • 670-739: Good
  • 740-799: Very good
  • 800-850: Excellent

With bad credit, car loans can vary in a few respects.

Interest Rate

In order to make a profit on lending a borrower money, lenders charge interest. Lenders usually show the interest rate on a loan as a percentage.

Your credit score affects the interest rate a lender is willing to approve you for, along with other facets of your credit history. An excellent interest rate, usually reserved for highly qualified borrowers, is anywhere from 0-4%.

For a borrower with a credit score under 500, lenders may charge interest as high as 30% or higher. The interest rate is a huge factor in determining the overall cost of a car loan, so pay close attention to it before agreeing to a purchase.


The principal of a loan is the total amount a lender lets someone borrow. As with any other aspect of a loan, your credit score is the first thing lenders look at to determine how much you qualify for.

Having access to a larger loan allows you to finance a more expensive vehicle, but the cost of repayment increases with high interest. In addition to the principal, it’s essential to consider the monthly payments, as well as the amount you’ll pay in interest.

Term Length

Not only does your credit score affect how much a lender will let you borrow, but also how long you have to pay the loan back. This amount of time is the loan’s term length.

Loan terms most often come in multiples of twelve months, but it is possible to negotiate a different term length in some cases. For example, 36-month and 60-month terms are both common, depending on the price of the car.

Generally, borrowers should avoid a term length longer than 60 months. While a longer term length will lower your monthly payments, you’ll pay more interest and may even pay more than the car’s total value.

2. Prepare a Higher Down Payment

The best way to negotiate a lower interest rate on a bad credit car loan is to pay more up front. The money you pay at the start of your auto financing is your down payment.

Although it is often difficult to save up for a higher down payment, it will reduce how much you pay in interest, taxes, fees, and monthly payments.

A large down payment can also get you approved for loans you may not have access to with no money down. Lenders will take your loan application more seriously if they see you have budgeted for a down payment.

3. Types of Loans

Luckily for buyers with bad credit, there are several methods of financing a car. Each has advantages and drawbacks, so consider all your options before making a decision.

Banks and Credit Unions

This should be your first stop, especially if you already have a relationship with a bank or credit union. A financial institution that you already bank with is more likely to consider you for a loan to keep your business.

In addition to higher approval odds, many banks and credit unions offer discounted financing to loyal customers. You might end up saving on interest rates.

Online Financing

With the technology we have today, it’s easier than ever to shop around for auto financing. By shopping online, you can often get preapproved, which will give you a good idea of the kinds of terms and interest rates you qualify for.

Even if you don’t accept a loan from a lender you find online, you can use the preapproval as a starting point for negotiating with another lender.

Dealership Partners

This is a more traditional method of financing a vehicle. At the dealership, there will be a finance specialist for you to meet with in person who will evaluate your credit.

The specialist will run your credit and see if you qualify to borrow from a lender the dealership has partnered with. These negotiations can be stressful, but they can sometimes result in a good deal if you go in with enough research.

4. Prequalification

You shouldn’t confuse prequalification with approval. To get approved for a loan, a lender must run a hard credit inquiry, which can negatively impact your credit score.

Prequalification, on the other hand, is a soft inquiry that won’t result in a hard inquiry. While it isn’t a final offer, a prequalification will give you a rough estimate of what you qualify for.

5. Online Shopping Is Your Friend

By shopping online, you can quickly check local dealerships for vehicles you’re interested in. Many dealership websites also offer prequalification through lender partners.

If you prequalify through an online lender, you can often see what you qualify for with dealerships in your area.

6. APR vs Interest

When you begin shopping for vehicles and choosing between lenders, you should know the difference between an interest rate and APR. While similar, they aren’t interchangeable.

APR is always higher than the interest rate. This is because it includes fees, taxes, and other “hidden” costs that the interest rate doesn’t account for.

Interest rates are only the cost of borrowing from the lender, and don’t include the fees reflected in the APR.

7. Negotiate Price First

This tip is primarily for face-to-face negotiation. At a dealership, the salesman will try to negotiate monthly payments with you.

This tactic is a way to “sneak” higher interest rates into the deal without explicitly stating them. To avoid falling into this trap, settle on a total price for the vehicle first, then start negotiating term length and interest.

8. Get a Co-Signer

For borrowers with especially poor credit, a co-signer may be the best way to get a good rate on financing. When you apply for financing with a co-signer, the lender runs their credit as well.

If you default on a loan, the co-signer then becomes responsible for it. For this reason, you should only choose someone you have a close relationship with and trust.

9. Be Careful Financing With a Dealership

Car shopping is stressful. Negotiating with a car salesman is an even more high-pressure experience.

Salesmen make their money on commissions, so their goal is to get you to pay as much for a vehicle as possible. They’ll try to sell you “add-ons” like warranties and service agreements.

However, these add-ons are almost always a bad deal, so be sure to read the fine print of your loan agreement carefully before signing.

10. Be Ready to Walk Away

While it can be stressful, test-driving a car is exciting, and it’s easy to fall in love with a car on the lot. Salesmen rely on this and will tug at your emotions to pressure you into buying.

Never get so attached to a car that you aren’t willing to walk away from a negotiation. No matter how poor your credit is, have an idea of how much you’re willing to spend and stick to it.

Find Car Loans With Bad Credit Fast

If you aren’t sure how to find car loans with bad credit, keep these ten things in mind. Do your research and be prepared to offer a higher down payment to mitigate interest payments.

Pay close attention to the loan agreement before signing, and read the terms carefully. Negotiate the price before agreeing to a monthly payment.

Unlike traditional financing, Loanz can get you approved in just minutes and release funds in one day. Get started now to find out what you qualify for!

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