How to Get a Car Loan with Bad Credit

Bad credit can put a damper on a lot of things, including loans. But it is still possible to get a car loan with bad credit, even if your options may be limited and the terms not as favorable. Here are a few things to consider if you're looking to get a car loan with bad credit.

Your Credit Score

First, it's important to know what your credit score is. Your credit score is a three-digit number that represents your creditworthiness. It's used by lenders to determine whether you're a good candidate for a loan and what interest rate you'll be offered. A high credit score means you're a low-risk borrower, which is good for lenders. A low credit score means you're a high-risk borrower, which is not so good for lenders. You can check your credit score for free with a number of online services.

Your credit score is important because it will directly impact the interest rate you're offered on your car loan. The higher your credit score, the lower your interest rate will be. And the lower your interest rate is, the lower your monthly payments will be. So if you're looking to get a car loan with bad credit, it's important to know what your credit score is so you can be prepared for the interest rates you'll be offered.

Interest Rates

Speaking of interest rates, let's talk about what you can expect if you're looking to get a car loan with bad credit. Interest rates for subprime borrowers, or those with credit scores below 640, can be as high as 20% or more. That's more than double the average interest rate for a prime borrower, or someone with a credit score of 720 or above.

If you have bad credit, you can expect to pay a higher interest rate on your car loan. But there are things you can do to offset the higher interest rate. One is to make a larger down payment. A larger down payment will lower the amount you have to finance, and therefore the amount of interest you'll have to pay. Another is to choose a shorter loan term. A shorter loan term will also lower the amount you have to finance, and therefore the amount of interest you'll have to pay.

Down Payments

Speaking of down payments, let's talk about how much of a down payment you can expect to need if you're looking to get a car loan with bad credit. A down payment is the amount of money you put towards the purchase of your car. It's typically expressed as a percentage of the total purchase price. For example, if you're buying a car for $20,000 and you make a down payment of $4,000, your down payment would be 20%.

Down payments are important because they lower the amount you have to finance. And the less you have to finance, the lower your monthly payments will be. Down payments also show lenders that you're serious about the purchase and that you have some skin in the game.

If you're looking to get a car loan with bad credit, you can expect to need a down payment of 10% to 20% of the total purchase price. That means if you're looking to finance a $20,000 car, you'll need a down payment of $2,000 to $4,000.

Monthly Payments

Speaking of monthly payments, let's talk about how much you can expect to pay if you're looking to get a car loan with bad credit. Your monthly payment will be determined by a number of factors, including the price of the car, the length of the loan, the interest rate, and your down payment.

If you're looking to finance a $20,000 car over a 60-month loan term at an interest rate of 20%, your monthly payment would be $377. That's just an example, and your monthly payment could be higher or lower depending on the factors mentioned above.

If you're looking to get a car loan with bad credit, you can expect your monthly payments to be higher than they would be with good credit. But there are things you can do to lower your monthly payments. One is to make a larger down payment. A larger down payment will lower the amount you have to finance, and therefore your monthly payments. Another is to choose a shorter loan term.

Posted on Mar 16, 2023, in Auto Credit