Your Guide to Applying for a Car Loan With Bad Credit

If you need a car loan but have less-than-perfect credit, you may be wondering how you’ll ever get approved for a loan. Credit scores are used to evaluate the likelihood you’ll pay back your loan; therefore, lower scores are perceived as being riskier for a lender. In exchange for this risk, lenders will typically charge a higher interest rate — or deny you a loan altogether.    

Although it is undeniably easier to get approved and receive better terms with a good credit score, there are still ways to improve your chances of getting approved for a loan. Keep reading to learn how to get a car loan with bad credit! 

How to Get a Car Loan With Bad Credit

1. Improve Your Credit Score

If you are in the market for a new car but don’t need one right away, one of the best things you can do is work towards improving your credit score. When it comes time to get a loan, most lenders will look at your FICO score. This three-digit number is based on the information in your credit reports, ranging from very poor to exceptional. 

• Exceptional: 800+
• Very Good: 740 to 799
• Good: 670 to 739
• Fair: 580 to 669
• Very Poor: 579 or less

In general, lenders typically want borrowers to have credit scores of 670 or higher. If possible, you should aim to improve a fair or very poor credit score before applying for a car loan. By paying off your debt and making all of your payments on time, you should be able to boost your credit score.

2. Save for a Down Payment

If your credit score is low, you are less likely to obtain a loan that’s large enough to finance the entire purchase of your car. However, saving up enough money for a substantial down payment can help you qualify for a loan more easily. Typically, it is standard practice to put down a payment that’s equal to 20% of the car’s purchase price. The more money that you put down on a car upfront, the less you’ll have to borrow from a lender. Doing this can help you not only obtain a loan, but also significantly reduce your monthly car payments — helping you get on the road in no time!

3. Determine How Much You Can Afford

There are two major factors to consider when purchasing a car: the amount of money you can put down up front and how much you’ll have to pay each month moving forward. Once you figure these things out, you can get a better understanding of how much you can actually afford to borrow. 

Although it’s easy to be tempted by newer models with all the most recent features, it can also be difficult to get approved for a larger loan when you have poor credit. Furthermore, a longer auto loan term means you’ll actually end up paying more in the long run due to interest rates. To increase your chances of qualifying for a loan, it may be smarter to look for a more inexpensive vehicle, such as a pre-owned or basic trim model. Click here to browse our inventory of certified pre-owned and used cars!  

Related: A Step-by-Step Guide to Financing Your Next Car

4. Shop Around for the Best Loan

Similar to how you might shop around for the perfect car, you can also do the same thing when it comes to looking for the best loan. Auto loans are available through a variety of different sources, including a bank, credit union, online lender, or car dealership. Take the time to shop around and compare lenders to ensure you’re getting the best offer. At M&L, we provide competitive financing rates and terms on our large selection of vehicles. Click here to apply for financing through our dealership’s finance center!

Related: The Benefits of Getting Pre-Approved for a Car Loan

5. Bring a Co-Signer to Help

At the end of the day, there’s nothing wrong with asking for help! If you have bad credit, then finding a co-signer can increase your chances of securing a loan. A co-signer is someone who agrees to apply for a loan with you, making them equally responsible for paying it back. This person is often a family member or close friend who has good credit — giving the lender peace of mind that the money borrowed will be repaid on time. A co-signer is a great way to get a car loan with a low interest rate that you might not qualify for otherwise.

Financing Your New Car at M&L Lexington

Now that you know how to get a car loan with bad credit, it’s time to find the vehicle of your dreams! Although it is possible to obtain a car loan with poor credit, working towards improving your credit score is one of the best things you can do for yourself financially. However, if you’re unable to postpone purchasing a car, consider buying a lower-priced vehicle, shopping around for the best loan, or bringing a co-signer to help you qualify. And as always, we’re here to help every step of the way. If you have any questions about financing your next car, or if you’d like to schedule a test drive, don’t hesitate to contact us by clicking the link below.