Top Bad Credit Car Loans of 2017
Best ways to get the financing you need to buy a car, even with less-than-perfect credit.
There are many factors that can contribute to a person’s need for a bad credit car loan, such as poor financial advice, unexpected job loss, inexperience of youth, and many other possible reasons. If you’re reading this, chances are you’re in such a situation and your not-so-great credit score is stopping you from getting that auto loan. Fret not – while you work on improving your credit score for future endeavors, we can recommend some solutions while you still have bad credit.
Here are some great car loan services and lenders for those with bad credit:
Our Picks for Bad Credit Car Loan
Choose a Topic
- Our Pick for Special Financing: Auto Credit Express
- Our Pick for Lead Generation: MyAutoLoan.com
- Our Pick from the Big Banks: Capital One
- Other Lenders
- How Bad Credit Can Affect Your Car Loan Odds
- Shopping for Car Loans When You Have Bad Credit
- How We Picked the Best Bad Credit Auto Loans 2017
- Common Car-Buying Scams
- Searching for Bad Credit Auto Loans
Poor credit history doesn’t necessarily mean a person has bad work ethic. However, it can and will affect the way a bank or lender would react. If you happen to have poor credit, it’s almost impossible to get an auto loan the traditional way. We found the top options for people who have trouble getting a traditional auto loan.
Ideally, you should focus on fixing your bad credit rating by paying any outstanding balances and managing your existing credit accounts first before attempting any large purchases or loans. However, realistically speaking there are many people across the country that have no other choice but get a personal automobile as mass transit isn’t really an option going between Point A and Point B. An example is professionals whose duties require them to have personal transportation.
For anyone currently facing that situation, we’ve created this guide to help you understand bad-credit car loans, find the best one for you, and also provide tips on how to manage them as you drive down that long road to credit recovery.
People with bad credit may see Auto Credit Express as a life-saver, as the company offers a wide range of options and expert knowledge that may help you get a lower annual percentage rate (APR). The company is different from most lenders as they do not automatically deny a loan for older vehicles with high mileage. You could even get help from them if you’ve gone through bankruptcy, as they work with both traditional dealers and special finance dealers that accept buyers with lower credit scores. For most cases, a monthly gross income of $1,500 to $1,800 is enough.
My Auto Loan gets people connected to up to four lenders at once, even people with bad credit.
The website has a number of impressive tools including an interest rate calculator that helps you estimate what kind of APR you could get.
The company also makes it clear you need at least $1,800 income a month and zero bankruptcies. They also restrict loans to cars eight years old or newer and have fewer than 100,000 miles to it. It’s then up to potential lenders if a cosigner or down payment is required. The BBB gave the company an A+ rating, and has a great track record with strong customer reviews.
Capital One is among the primary big-bank lenders available today for people with bad credit, having over 12,000 dealers nationwide accepting its financing. They also have competitive interest rates, as well as great educational resources for buyers. Their website has an auto navigator tool that helps users get pre-approved, as well as compare car payments on specific vehicles online. They allow used cars too, as long as they’re less than 10 years old and have fewer than 120,000 miles.
Other Lenders to Consider
- This company, along with Capital One, is one of the biggest names that allow car loans for people with bad credit. However, it should be noted that they may be more exclusive now, as in 2015 they capped the loans to subprime buyers.
- Wells Fargo approves loans for new and used cars, as well as lease buyouts and private sellers (unlike Capital One). You can manage your account online or visit any of their 6,200 branches all over the country.
- Owned by Santander Consumer USA, RoadLoans.com is one of the country’s leading bad credit auto loan providers. Their site helps customers with all major loan types except for lease buyouts.
- The company is above the rest when it comes to FAQs regarding the lending process, as well as having customer-friendly tools that help even the most clueless understand the car-buying procedure.
- They also have a live chat service which is great for those who have many questions before they apply. Unfortunately because of many restrictive loans and numerous credit checks, Santander has a low rating in JD Power’s 2015 auto financing survey.
- This company connects bad-credit borrowers with multiple lenders. Even customers who’ve declared bankruptcy are welcome to apply, given the bankruptcy has already been discharged.
- Their site is quite clear about their requirements: applicants need at least 550 credit score except for dealer-specific loans that allow lower scores. Those with credit score of 652 need to prove at least a monthly income of $1,800.
- The website also includes finance calculators and good buying tips, even though the site looks a bit cluttered. Blue Sky is relatively new, but has few complaints since its inception in 2004 and they have an impressive A+ rating at the BBB.
Understanding How Bad Credit Can Affect Your Car Loan Odds
Poor credit scores would always mean larger monthly payments on approved auto loans. Additionally, lenders charge higher interest rates so it offsets their default rates. This is especially true for bad credit auto loans – the higher the bank’s risk in lending to people with bad credit, the higher the monthly payment will be for the interested bad credit borrower.
This table will help you understand how lower credit scores return higher interest or annual percentage rates (APRs) and higher monthly car payments.
Total Interest Paid
*based on a 60-month, $20,000 auto loan at current national average rates
The better your credit score, the better your APR, which means your monthly and lifetime costs would be drastically lower.
Shopping for Car Loans When You Have Bad Credit
Buying a car, at first seems glamorous. Yet, a lot of people despise the process once the reality of the situation kicks in. Believe it or not, bargaining with dealers can get pretty tasking, even for people with amazing credit!
For those with bad credit, it’s of utmost importance to be prepared. Here are a few bad credit loan shopping tips:
Before Visiting the Dealership
Here are some things you need to consider before going to a car dealership:
Tip 1: Find out your exact vehicle needs
Because of poor credit, always expect to pay a much higher APR. As such, don’t buy a car that’s larger or more complex than what you need daily – keep things as basic as possible. Inversely, if you need a car for a large family or a job that requires you to transport supplies and goods, make sure the car’s not smaller than you need either. Also factor in things like gas mileage, routine maintenance, and many other things depending on your personal situation. Now banks and credit unions are jumping on the eco-friendly bandwagon by ramping up green auto loan programs. Additionally, shoppers who buy a certified green vehicle (by the Environmental Protection Agency), specifically a “SmartWay” vehicle can receive a 0.5% discount on their interest rate for a new or used vehicle from certain banks.
Tip 2: Set a budget
After you’ve established what car you need, seek a budget. Using an auto loan calculator available online, you can get an idea of how much your long-term financing and monthly payments will be, as in our example in the table above. Look at dealer websites, car magazines, newspapers, and whatever resources you can get so you’ll get a better understanding of the market value and true cost of the car you want.
If you’ve found an online calculator to help you determine estimated costs at different term lengths. The longer your contract, the smaller your monthly payments. But keep in mind that because of interest in more payments, you will end up paying more in the long run. Most bad credit car loans have 24-36 month terms, rather than the traditional 48-60 months, to reduce risk on the lender side of things.
Lastly, remember that depending where you are, many states mandate auto insurance – yet another factor you’ll need to consider in your monthly costs and budgeting.
Tip 3: Know the contents of your credit report
If you’re here, there’s a big chance you’re also trying to fix your credit. As such, you probably also know by now that you should monitor your credit report and what’s in it before you even apply for an auto loan. By law, the three major credit bureaus should provide you a free copy of your credit report once a year – just go to the industry’s annual credit report site. Make sure you’re at the correct one and that you’re never to pay for your free yearly credit report.
If you have already gotten your free copy this year and need a new one, you can buy from the three major bureaus, preferably directly from them:
- Equifax Credit Information Services
- TransUnion Corporation
Buying the Vehicle
When you’re done planning and researching for your automobile, you can now proceed to actually buying it. Here are a few things to remember:
Tip 4: Stay in your price range
Remember to stick to your budget! Any extra amount added onto what you had already planned may end up costing you, especially since bad credit car loans have higher rates for everything.
Tip 5: Negotiate
Don’t be afraid when it comes to negotiating. While it seems intimidating, keep in mind you did all the research prior. As such, you have an idea of what a car’s really worth and what you’re willing and able to pay for it. Because of a bad credit score, you might not be able to negotiate the terms of your car loan but you’re welcome to try and negotiate the purchase price.
Tip 6: Be careful with add-ons
Again, stick to your budget. There will be a chance you’ll still be offered additional products and services before you sign your contract – the price of these add-ons aren’t included in the price quote. If you get these add-ons, it adds to your previously-agreed cost of the vehicle, raising the amount of your financing. It has a tendency to snowball and you really don’t want to find yourself surprised that the price of your monthly payments is significantly bigger than you had intended.
Tip 7: Read the contract and ask about it
As with any legal document, read your contract first and understand it before you sign. After all, you know your financial situation and needs better than any lawyer or salesman. Feel free to ask questions about anything in your contract that you don’t understand. If anything makes you feel uncomfortable, do not sign it – once you do you are already legally obligated to it.
After your bad credit car loan has been approved and you got your car, you still need to remember and do a lot of things.
Tip 8: Keep a copy of your contract
Just as important as reading the auto loan contract before signing it is keeping a copy after. Make sure to get your copy, with all signatures and details filled in, before leaving the dealership. Don’t trust that they’ll arrive safely to you in the mail. After you do obtain your copy, make sure to keep it in a safe place in the event that you need to refer to it in the future.
Tip 9: Pay always and on time
Never miss a payment! This is especially important as you already have bad credit and know it’s a consequence of late or missed payments. One of the best ways to make sure you always pay on time is to send up automatic payments. Another is to pay more than the minimum – it helps to decrease your total interest in the long run.
If by any chance you have trouble paying the minimum, attempt to negotiate rather than not pay your lender at all. Just contact them if you think you might be late with a payment – many are willing to help! Also keep in mind that because you’re a high-risk loan, they might repossess the vehicle sooner if you miss even a single payment. Some states even allow lenders to repossess vehicles without the need to go to court.
Tip 10: Be a Safe Driver!
Being a safe and smart driver doesn’t only protect your kids (between 2010 and 2015, almost 50% of kids ages 8 to 14 who died in car crashes were not wearing a seatbelt) but they may lower your costs on a loan. FICO recently began a program that measures a drivers safe driving record. Additionally, poor credit scores can be worse than a DUI when it comes to shopping for car insurance.
Having a good credit score may not only affect your loan rate, but may also indirectly increase your safety a little, since you may be able to afford a more advanced, and safer car. Semi-self-driving cars like the Subaru Impreza have so many cameras and safety features, it’s likely to reduce accidents over the long run. Eventually, insurance is likely to be eliminated completely, or perhaps paid by the manufacturer, as cars become more and more autonomous.
How We Picked the Best Bad Credit Auto Loans of 2017
We know that having bad credit means having a difficult time finding an auto loan and getting approved. But just because your credit isn’t great doesn’t mean you have zero chance – just make sure to broaden your search and be more patient.
A great tip is to include local banks and especially credit unions, as the latter often has more flexible lending criteria than the former. Additionally, if you have a long-standing relationship with a specific bank, they might have a better idea of your habits and ability to repay a loan compared to other potential lenders.
In the list we have on this page, we no longer considered brand-specific lenders like Honda Financial Services or Ford Credit. The best auto loan services and lenders we found provide:
A wide variety of loans
The best lenders allow both new and used cars, although most that allow bad credit focus on used cars. There are the rare ones that allow loans for private sellers.
Willingness to work with those who’ve gone through bankruptcy
There are lenders that won’t consider you if you’ve previously declared bankruptcy, but a select few would let you as long as you’ve gotten that discharged.
Educational articles and tools for borrowers
Some of the best lenders give information and genuine help so borrowers, especially those with poor credit, to understand the car-buying process and to help them reduce the risk of defaulting.
Great and helpful customer support
Various contact options, and even a FAQ section or page that discusses common questions about the borrowing process clearly..
Reasonable, clearly-disclosed requirements
If the lender has limits/caps at certain amounts, or won’t allow loans depending on certain factors like car age and mileage, or would require you to have a certain credit score or income, it should be clearly stated on their website.
We considered each lender’s reputation including date established, BBB rating, online reviews, JD Power’s 2015 Consumer Financing Satisfaction Study, and many other applicable things that contribute to a company’s reputation.
Common Car-Buying Scams
Having bad credit may make you feel vulnerable and afraid when making big purchases, no matter how necessary, like a vehicle. This is especially scary when you know there are car dealers that aren’t as trustworthy, scamming people because they’re misinformed or uninformed, or taken advantage of because of their desperation to get a vehicle.
The best defense is to get educated – there are dozens of car-buying scams, but here are the most common ones that may affect people with bad credit.
A yo-yo loan is when a dealer lets you take possession of the car while your financing isn’t final, especially if you have shaky credit and typically can’t get preapproved for a loan. In turn, you think you’ve closed on a loan, but then the dealer calls you days (or even weeks) later telling you your financing fell through. You end up pressured to take a less-favorable deal so your car won’t get repossessed.
Make sure you are preapproved before going to a dealer, or get them to show you your loan approval documents before you get your car. Do not take the car unless you see solid proof your financing has already been approved.
Co-signer ‘straw purchase’ scams
A dealer may offer and pressure you to get someone to cosign, convincing you that you qualify for a much lower interest rate and improve your credit score because your cosigner has great credit history. While this is true, it is a huge risk that could potentially destroy relationships and families especially if the borrower can’t pay back the car loan and destroys the cosigner’s reputation.
Some dealers abuse this high-pressure tactic, turning it into a scam by preying on your confusion when you and your cosigner are doing the loan paperwork. Often the borrower would find out the loan is only in the cosigner’s name while the borrower’s name is absent.
If you ever feel rushed or pressured while going over paperwork, run. As previously mentioned, you should always read and understand the documents you sign. In the case of cosigning, you both need to sign the same contract – not separate ones.
The lemon ‘as-is’ car
When you look at used cars and see one labeled “as is – no warranty” be wary. Even if the dealer tries to assure you it’s fine and there are zero problems with the vehicle, it may possibly be a lemon – a car (often new) that has several manufacturing defects. It could also be a car that has previously been wrecked or flooded.
When buying a used car, find its history – check the car’s title but be wary that its been “washed” or altered to hide the fact it’s been salvaged. Try investing in a vehicle history report from CARFAX or a similar service to avoid getting a car that would break down almost immediately.
Online financing refusal
So you’ve done your research and even got preapproved for financing, but then the dealer of your choice would tell you they can’t accept online financing. Perhaps they’ll tell you they’ve had lousy luck with online lenders bouncing checks, or something to that effect, and that they’d be more than happy to offer you their in-house financing. Chances are, it would be at a much higher APR than the one you’ve got with your online lender.
In such situations, just walk away. The only time it’s acceptable to use the dealer’s in-house loan instead of the one you’ve already secured is when the former’s terms are better than the latter’s – not worse.
Searching for Bad Credit Auto Loans
Even though having bad credit may exclude you from great interest rates, you’re not completely shut out of getting car loans, so start your search! You actually have a good number of options available if you know where to look.
The lenders listed in this page are definitely worth the look, but also consider your existing bank and credit unions available locally. If you don’t ask, the answer is always no, so never assume a lender won’t work with you! Our top picks, Auto Credit Express, Capital One, and My Auto Loan, are all worth a look.