Key Takeaways

The best bad credit car loans offer affordable interest rates, flexible eligibility requirements, and transparency. A less-than-perfect credit report doesn’t have to hold you back from financing, but you may pay a higher interest rate.

A low credit score can be a big barrier for many when it comes to securing financing products at favorable terms, such as auto loans. Fortunately, bad credit car loans will be easy to qualify for, even if your credit history is less than perfect. The key is to compare your options and shop around so you can get the best possible deal.

In this article, we’ll talk about the factors that lenders may consider when qualifying you for your loan, the types of auto loans available, the best auto lenders out there, and tips on how to improve your credit so you can secure better interest rates.

Factors That Affect Bad Credit Car Loans

Securing financing is a big part of a car purchase, and you want to learn as much as you can about it to feel confident about the choices you make. Here are a few factors that your lender may consider when you apply for a car loan with bad credit.

Credit Score

Your credit score will indicate your creditworthiness to a lender. It is a key factor that lenders look at when deciding if they will lend to you, how much they can lend, and the interest rate they should charge, depending on the type of credit you are applying for, whether you are refinancing or applying for a trade-in.


Lenders will also look at your income before determining if they can approve your loan application. This allows them to determine if you’ll have sufficient funds to afford the monthly payments. If you don’t have much left after covering your bills each month, it might be best to consider additional income sources such as overtime, side gigs, or selling items on Etsy or Facebook Marketplace. This will improve your chances of getting car loans with bad credit.

Employment History

Your employment history is important for auto lenders. Lenders will consider information such as where you’re working, the nature of your work, and the length of your employment. Assessing this information allows lenders to understand if you have a stable source of income. For example, if your main source of income is through contract or freelance work, it may be difficult for you to qualify for a loan. To improve your chances of getting approved, you’ll have to demonstrate that you have steady employment and reliable access to income each month through full-time work.

Down Payment

The amount of money you can put down can have an impact on your car loan. Money down can reduce the loan amount, which means there’s less risk for your lender. It is also an indication that you’re less likely to miss payments because you may lose the down payment in case of repossession. To receive a more favorable loan offer, it is better to put down a larger down payment. It is recommended you put down 20% for a new car and 10% for a used car.

Types of Bad Credit Car Loans

Before you apply for a car loan with bad credit, it is important to understand your options. Consider the three financing options listed here and compare them to decide which one may be right for you.

Online Loans

Online car loans are quite similar to traditional lenders but may offer more favorable annual percentage rates to borrowers with a bad credit score. They can be a good option for those who want quick financing and ease of application. You’ll be able to prequalify online and fill out an application along with the necessary documents. Once the lender checks your loan application, you’ll receive their decision. If approved, funding is typically done on the same day.


  • Competitive interest rates
  • Convenient and quick online applications
  • You’ll have more auto loan providers to choose from


  • Online lenders may not always have the best customer service.
  • Some lenders may charge predatory rates on bad credit car loans.

When shopping online for a car loan, it is recommended you shop around and get quotes from multiple lenders. Pay special attention to fees such as prepayment penalties and origination fees. Avoid borrowing any more than you can afford so you don’t end up with a lot of secured debt.

Guaranteed Approval Loans

Many car dealerships and lenders offer guaranteed financing to borrowers with bad credit that don’t qualify for conventional loans. They may use other criteria to determine loan approvals for new car loans. Despite the name, these loans are not guaranteed for everyone. Although they do not require a minimum credit score or credit check, the lenders will still have eligibility requirements that you need to meet to be approved.

In most cases, lenders will look at your income, employment history, down payment, and debt-to-income ratio. It is also important to note that the interest rates you’ll qualify for will be higher than conventional auto loans.   


  • Easier to qualify for
  • No credit check required


  • Higher interest rates
  • Not guaranteed for everyone
  • May need a bigger down payment

If you haven’t been able to secure financing in the past and are considered guaranteed car loans, be sure to read the loan terms carefully. Compare your options, and once you take on the loan, aim to pay extra each month to pay down your debt faster.

Zero Down Payment Loans

Zero down payment car loans do exist for car buyers who need to buy a car but are short on cash. These loans are available for borrowers with good credit as well as bad credit. Zero-down car loans for bad credit can be helpful if you need a car today, but they may end up costing you more over the life of the loan. Without a down payment, your loan amount for a new vehicle will be more, so it may take you longer to repay it.


  • Good for borrowers who are short on cash
  • Quick funding if you need a car immediately


  • It may end up being more expensive
  • It may take you longer to pay off the loan

If you’re considering a zero-down bad credit car loan, get a preapproval to help narrow down a price range. Having a budget will make the process easier for you. You can also use a loan calculator to determine your monthly payments. If the amount you are approved for is not enough, consider applying with a co-signer to get better rates and get qualified for a larger loan.  

Comparison of Bad Credit Car Loan Options

To make it easier for you to find the right car loan for bad credit, we compared a dozen lenders based on their credit requirements, interest rates, and terms. Based on our research, we found three lenders that stood out from the rest. Here are the top three bad credit car loans we recommend.

If you want to shop around and compare your options to get the best possible APR, myAutoLoan is a good option. This is an online marketplace that matches you with lenders based on your needs. The process is easy, convenient, and quick. You can also add a co-signer or a co-borrower.


  • APR: From 4.01%
  • Loan Term: 24 months to 72 months
  • Loan Amount: From $8,000 ($5,000 when you refinance)
  • Minimum Credit Requirements: 575


  • Online applications
  • Can apply with a co-signer or co-borrower
  • Prequalification available
  • No prepayment penalties


  • Customer service could be better
  • Not available to residents of all states

CarMax Auto Loans are worth considering when you’re looking for used vehicles. The entire application process can be done online. There are no minimum credit score requirements. The website has a prequalification tool where you can see your personalized terms and interest rates.


  • APR: Disclosed When You Prequalify
  • Loan Term: 36 months to 72 months
  • Loan Amount: From $500
  • Minimum Credit Requirements: None


  • Online applications
  • Prequalification available
  • No prepayment penalties
  • Low minimum loan amounts available


  • Financing is only for cars purchased at CarMax
  • Not available to residents of all states

Carvana offers used car loans for bad credit borrowers when they purchase cars from its inventory. You can prequalify to get a better idea about the financing terms offered. Prequalification is valid for 45 days, and you can apply with a co-signer.


  • APR: From 6.85%
  • Loan Term: 36 months to 72 months
  • Loan Amount: Not Specified
  • Minimum Credit Requirements: Not Specified


  • Online applications
  • Prequalification available
  • No prepayment penalties
  • Can apply with a co-signer


  • Financing is only for cars purchased at Carvana
  • Not available to residents of all states

Tips for Improving Credit Scores for Better Loan Options

While you may be able to qualify for car loans with bad credit, the loan rates you’ll qualify for will typically be higher. If you want access to lower interest rates and more favorable terms, here are a few credit repair tips to consider.

  • Get free credit report copies from the three credit bureaus- Equifax, TransUnion, and Experian, so you can take a closer look at why your FICO score is low.
  • Dispute any inaccurate information you find through credit monitoring. These could be because of mistakes made by financial institutions or identity theft.  
  • Identify the best credit repair companies and get professional help.
  • Address outstanding payments to make sure your debt doesn’t go into collections.
  • Pay your bills on time so you can avoid late payment fees, which can lower your credit score.
  • Bring your credit utilization down to improve your credit score. Use less than 35% of your available credit limit.
  • Consider credit counseling to address your spending habits, learn money management strategies, and develop good financial habits.  

Wrapping Up: Bad Credit Auto Loans

Having a car that allows you to get access to reliable transportation for work is valuable. Fortunately, your credit score doesn’t have to hold you back. Before you apply for a car loan with bad credit, review your options, read the fine print, and consider putting a larger down payment so you can reduce your total loan cost.

If you are finding it challenging to afford your car loan payment, take care of your unsecured debts so you can free up some money. Consider debt relief options like debt consolidation, debt settlement, and debt management plans. Get in touch with TurboDebt and take benefit of our free consultation to see how we can help you find the right debt relief option for your individual needs.