Financing a Car With Bad Credit: Is It Possible?

If you're considering looking into financing a car with bad credit, there are things you'll want to know before you get started. Here's what to expect.

By Liz Froment Apr 6, 2022

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Financing a car with bad credit can feel like a struggle. You may face less-attractive loan options with higher interest rates. However, that doesn't mean it's impossible. There are ways for people with less than perfect credit to secure financing and drive away with a new car. Here's what you need to know.

Why Credit Scores Matter

Your credit score is one of the first things any lender will review before offering you a loan. Typically, the higher your score, the more attractive the financing offer.

Lenders look at your credit score and credit report as a way to measure your creditworthiness. If you have a lot of outstanding debt or struggle to pay your bills on time, it may be a signal to them that you could default on your car loan. That makes you a potentially riskier customer, which is why you may see higher interest rates on loan options.

According to Experian, a poor FICO credit score is anywhere below 670 while a score of 800 or more is exceptional. Having a lower credit score could also mean you won't have as many options open to you. Additionally, you could end up paying more over the life of the loan because of these higher interest rates. Before you decide to shop for a new or used car, make sure you check your credit score.

Know Your Budget and Shop Around

Financing a car with bad credit is possible—when you get ready to finance a car, your budget is one of the first things you'll need to consider. Look beyond the car's sticker price and consider how much financing may cost as well as interest rates, sales tax, insurance, and maintenance fees. That way, you'll have a very good picture of what you can afford to pay, which can help make shopping a lot easier.

There are many places you can look for car financing, including your dealership, credit unions, banks, and online lenders. Having more options could mean finding a lender that will give you more attractive rates.

As you shop around, make sure you do your due diligence. If a rate seems too good to be true, look into it, especially if it's with a lender you aren't familiar with. Carefully read through terms on any offers and be aware of predatory lenders offering high-interest-rate loans.

Consider a Cosigner

To find a deal that's right for you, you sometimes have to wait a few months or even a year and work on improving your credit score. But if you need to get a car sooner rather than later, you may want to get a cosigner.

A cosigner is someone with a good credit history who agrees to apply for the loan along with you. That may improve your chances of getting better financing. However, if you miss any payments, your cosigner is responsible for covering them. Any defaults on your loan could affect their credit score too.

Tips to Improve Your Chances at Financing

While poor credit may be a hurdle, it doesn't always mean you've reached a dead end. You can take steps right now to help raise your chances of improving your credit score and getting better terms.

Work on improving your credit — Do what you can to increase your score. That may include paying your current bills on time and reducing your current balances
Consider a larger down payment — Having a larger down payment may improve your chances of securing better financing from a lender. As you're saving for a car, see where you can put away a little extra
Try getting pre-qualified — Pre-qualification can help you get a sense of your potential terms based on the financial information you provide. It can also help show the dealer and lender you're serious about buying
Change your budget — If you're struggling to get financing for the car you want, you may want to consider lowering your budget. A smaller loan can help your chances of getting approved for better financing

The Bottom Line

Financing a car with bad credit may feel daunting when you first decide to buy a vehicle. But it is possible. Thinking ahead and coming up with a plan can help you see where you need to start.

The process may take a bit longer, but anything you can do now to help improve your credit score may end up leading you to secure better financing and driving off the lot with your new car.

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Liz Froment

I love learning about money — deals, financing, and what to avoid. All that came in handy after my own extensive car search, where I put everything I learned about the financial side of things to use. That's where I can help you too. I want to give you tools to help you find the best vehicle that will fit your practical and financial needs.