Dreaming of a new set of wheels but worried your credit score might put the brakes on your plans? You might think that buying a car is not possible when your credit score isn't looking its best. But here's the good news: It's absolutely feasible with a little bit of know-how.
This article explores the ways you can get a car with bad credit. But first you'll learn about what it means to finance a car, the different types of lenders out there, and the possible benefits and risks. Plus, you'll get easy actionable steps on how to buy a car with a less than optimal credit score.
What does it mean to finance a car? Â
Before diving into the "how-to" of getting a car loan for those with bad credit, here are some basics: What does it mean to finance a vehicle? It means borrowing money from a lender — such as a bank, credit union, or dealership — to buy a vehicle. Instead of paying the full price upfront, you make monthly payments over a set period, typically 36 to 72 months. Â
Here are some key aspects about car loans to know:
Loan amount. The loan amount is the total cost of the car minus any down payment.
Interest rate. The interest rate is the cost of borrowing the money, expressed as a percentage of the loan amount. A higher interest rate means you'll pay more over the life of the loan.
Loan term. As a borrower, you usually have a length of time to repay the loan. This is called the loan term. A longer term means lower monthly payments but more interest paid overall.
Monthly payments. These go toward both the principal (the amount you borrowed) and the interest.
Collateral. When you finance a car, it acts as collateral for the loan. This means if you stop making payments, the lender has the right to repossess your ride to recover their money. Â
Possible benefits of financing a car with bad credit
Financing offers several advantages, even if you have bad credit. For example:Â Â
The opportunity to build or rebuild credit. Making on-time payments on your loan can improve your credit score. Â
Potential for better loan terms in the future. Successfully managing a loan can help you qualify for lower rates on future loans. Â
Ownership of an asset with resale value. Unlike leasing, financing allows you to own the car, which can be sold or traded in later. Â
Flexibility in payment plans. Many lenders offer customizable loan terms, allowing you to choose a repayment plan that can fit your budget.
Access to reliable transportation. A car loan lets you buy a dependable vehicle, improving your safety, work possibilities, and peace of mind. Â
Possible disadvantages of financing a car with bad credit
If you have unfavorable credit — even a score of 500 or below — and are shopping for a car loan, it's important to know there could be some risks. These include facing higher interest rates, stricter loan terms, and fewer car options.  Â
Traditional banks and credit unions might be hesitant to offer you a loan at competitive rates if your score is below 500. However, there are specialized lenders and dealerships that focus on this type of "higher-risk" financing. They fall into these categories:
Subprime lenders. These lenders specialize in working with borrowers with lower credit scores. Since they're taking on more risk lending to you, their interest rates will most likely be higher than prime rates.
"Buy here, pay here" dealerships. These businesses finance the car directly through their own company rather than through a third-party bank. They are often more lenient with credit requirements but might also charge high interest rates.
Credit unions. Many credit unions are member-focused and might be more willing to work with you — especially if you have a relationship with them.
Specific things to consider if your score is 500 or lower:
Higher interest rates. Expect to pay a much higher annual percentage rate (APR). This means the total cost of your car will be more than if you had good credit.
Less favorable terms. You could be offered a longer loan term (e.g., 72 or 84 months) to lower your monthly payments. But this increases the total interest paid. You might also need a larger down payment.
Limited choice. You might not be able to get your dream car. Lenders who specialize in bad credit often prefer financing older, less expensive, and reliable used cars to minimize their risk.
Focus on rebuilding. View this loan as an opportunity to improve your credit. Make every payment on time to boost your score.
5 key steps to getting a car loan with bad credit
Understanding your credit health, the differences between lenders, and all the financing pros and cons is critical to successfully getting a car loan with a low credit score. You also need to be prepared. Follow these quick steps to get ready:
Review your credit report. Check your credit report for errors and work on improving your score by paying off outstanding debts.
Research and compare lenders. Lenders have varying requirements for financing a car with bad credit. Compare interest rates, loan terms, and eligibility criteria. Â
Save for a down payment. A larger down payment reduces the loan amount and increases approval chances. Aim for at least 10-20% of the car’s price.
Consider getting a co-signer. A co-signer with good credit can help you secure better loan terms and lower interest rates.Â
Plan for timely repayment. Making payments on time will gradually improve your credit score, making future financing easier.
Navigate your car loan journey with EarnIn
The journey to getting a car loan with bad credit can feel daunting. But effective money management and a clear path to improving your credit health can put you in the driver’s seat. It's not as hard as you might think to take control of your financial well-being, and it could get you one step closer to securing your dream ride.
This is where
EarnIn comes in. It empowers you with tools that help you stay on top of your finances, particularly when you're focused on improving your credit health.
EarnIn’s Credit Monitoring tool can help you stay informed about changes to your credit report, giving you the insights you need to understand and improve your score.
EarnIn also provides the visibility to help you make informed decisions, whether it's understanding the impact of your payments or identifying areas for improvement. Try
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FAQs
Can you get financing for a car with a 500 credit score?
Yes, it's possible to get a car loan with a score of 500. But expect higher interest rates and stricter loan terms. Â
What is the lowest credit score you can have and still get car financing?
Some lenders accept scores as low as 300 to 500, but terms vary. Â
What credit score do dealerships use for financing?
Most use FICO Auto Score, which differs from the standard FICO Score. FICO Auto Score has a scale range of 250 to 900, while the standard FICO score assigns scores on a scale of 300 to 850.
What is the smartest way to finance a car?
Compare lenders, save for a down payment, and choose a shorter loan term to reduce interest costs. Â
Is it better to finance a car through a bank or the dealer?
It usually comes down to preference. Banks often offer lower interest rates, while dealerships provide convenient financing options.
EarnIn is a financial technology company not a bank. Banking Services are provided by Evolve Bank & Trust or Lead Bank, both member FDIC. The FDIC provides deposit insurance to protect your money in the event of a bank failure. More details about deposit insurance here. Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services.
This Blog was sponsored by EarnIn. While the author received compensation, the information shared is grounded in independent research and intended to provide helpful and accurate guidance to readers.
Your VantageScore 3.0 from Experian® indicates your credit risk level and is not used by all lenders, so don't be surprised if your lender uses a score that's different from your VantageScore 3.0. Learn more. 
