U.S. new car sales in June were 1.37 million units according to recent data released by Wards Intelligence despite rising interest rates.
The average interest rate paid on new car loans in the first six months of 2023 was 7.09 percent, up from 4.86 percent a year earlier, according to Cox Automotive, a research firm.
People with bad credit don’t have to miss out on getting a new car loan.
Car Loans for Bad Credit: New, Used & Refinancing
Best online auto lenders for bad credit
CarDirect and InstantCarLoan specialize in helping people rebuild their credit. Both lenders have a no-hassle process that can be started online in as little as 60 seconds.
CarsDirectBest for any credit score
InstantCarLoansBankruptcy on credit is okay
More on CarsDirect
CarsDirect provides up-to-the-minute car pricing information and access to special financing options for buyers with less-than-perfect credit.
The cool thing about CarDirects is they employ pricing experts that analyze the latest car pricing data to identify the best deals and pricing trends that are useful to car shoppers.
Here are some of the benefits of using CarsDirect:
- Up-to-the-minute car pricing information.
- Special financing options for buyers with bad credit.
- Objective pricing information to ensure that you are getting a fair price.
- Easy-to-use website to easily find the information you need.
More on InstantCarLoans
Whether you have bad credit, poor credit, past bankruptcies, subprime credit, repossessions, InstantCarLoans has assisted people with purchasing new and used cars.
InstantCarLoans has strategic partnerships with trusted dealerships across the United States to get you the best rate and terms possible. In some cases, on approved credit, you can get financed with no money down payment.
Here are some of the benefits of working with InstantCarLoanTM:
- Loans to people with all types of credit histories.
- Quick and easy online application process.
- Partners with the nation's most trusted dealerships.
- Zero down financing in some cases.
Best credit unions for bad credit auto loans
Consumers Credit Union and Digital Federal Credit Union offer competitive rates and terms for members with bad credit.
Consumers Credit UnionBest for lower rates
Digital Federal Credit UnionSame rates for new and used
More on Consumers Credit Union
Consumers Credit Union is a credit union that anyone can join for just $5. This means that you can get access to CCU's competitive rates even if you don't live in the area or have any affiliation with the credit union.
Once you're a member, you can apply for an auto loan with CCU. CCU may approve loans for borrowers with credit scores as low as 550, making this lender a solid option if your credit needs some work.
Another benefit of CCU is that they allow joint applications. This means that you can apply for an auto loan with a friend or family member who has a stronger credit profile.
Here are some of the benefits of working with Consumers Credit Union:
- CCU offers auto loans starting at just 5.54% APR.
- Anyone can join CCU for just $5.
- CCU may approve loans for borrowers with credit scores as low as 550.
- CCU allows joint applications.
More on Digital Federal Credit Union
Digital Federal Credit Union (DCU) offers a variety of auto loan options, including new and used car purchase loans, refinance loans, and lease buyout loans. Membership is open by meeting certain requirements.
DCU offers competitive auto loan rates for both new and used vehicles, including refinance and lease buyout loans. The rates on the DCU website reflect rates available to borrowers with excellent credit and a 0.5 percentage point discount.
To qualify for this discount, members must use direct deposit to a DCU checking account and maintain electronic loan payments. An additional rate reduction of 0.25 percentage point is available for energy efficient vehicles.
Here are some of the benefits of working with Digital Federal Credit Union:
- DCU offers a variety of auto loan options.
- DCU has two different online auto loan applications.
- DCU offers competitive auto loan rates.
- Lower rates if direct deposit is set-up along with automatic electronic loan payments.
- An additional rate reduction is available for energy efficient vehicles.
Best lenders for bad credit auto refinance
Upstart and Caribou specialize in auto refinance loans and offer loans to people with bad credit.
UpstartBest for fair to poor credit
CaribouCheck your rate to prequalify
More on UpStart Car Refinance Loans
If you're looking to reduce your car loan payments, Upstart offers borrowers with bad credit a unique opportunity to rely on factors other than credit scores. Upstart uses a variety of factors to assess a borrower's creditworthiness, including over 1,000 data points. This allows Upstart to approve more borrowers than traditional lenders, who often rely solely on credit scores.
The Upstart application process is simple and takes just minutes to complete. Applicants can start the application online and see rates without affecting their credit scores. If an applicant selects an offer and applies, a hard credit check is done.
Upstart also integrates with the Department of Motor Vehicles in all states where it offers loans, so it can automatically pull vehicle details and existing loan information for auto refinancing applicants.
Here are some of the benefits of working with UpStart:
- Bases loan approval on a wider range of criteria.
- Minimum annual gross income: $12,000.
- No bankruptcy-related restrictions.
- No origination fee.
More on Caribou Car Refinance Loans
Caribou is an online auto loan refinancing company that partners with a network of lenders, mainly community banks and credit unions.
Caribou uses a soft credit check to pre-qualify applicants and present them with rates from its network of lenders. Once an offer is selected, Caribou or the lender will do a hard credit pull. The entire application process, from pre-qualification to funding and title change, is accessible online.
Here are some of the benefits of working with Caribou:
- Origination fee of $399, which can be financed back into the loan.
- Loan amounts range from $10,000-$125,000.
- Estimated APR range from 5.69-28.55%.
- Live customer support is available.
Check your credit scores first
Your credit score ranges from 300 to 850 and is based on your credit report with the three credit reporting agencies — Equifax, Experian and TransUnion. A high credit score qualifies for a better car loan rate than one with a low score.
Shaving just one percentage point of interest from a $15,000 car loan over 60 months would save hundreds of dollars in interest paid over the life of the loan.
Because lenders rely on your credit scores to decide if you qualify for their loans, it’s important that you know your scores before applying for a car loan. Plus, your credit scores may not be as bad as you think.
Don’t settle for a high interest car loan just because you think you have bad credit. Without checking your scores first, an auto dealer can tell you anything. Some lenders use the typical FICO scores to make a lending decision while others use specialized auto lending FICO scores.
While you may not have access to the exact credit scores used by a lender, myfico.com can give you a pretty good idea of both your regular FICO score and your auto-enhanced FICO score for a fee.
Get your financing second
After you've checked your credit, the next step is to avoid any mishaps with a dealership by getting your financing. Stepping into the dealership with your financing in hand is the next best thing to paying cash.
You don’t have to worry about the dreaded, long drawn-out process of sitting down with the finance office. While you can expect to spend some time at the dealership, having your own financing cuts that time significantly. When the finance manager pitches various warranties and protections, you can use your pre-approval as an easy way of saying no.
Let the finance manager know you've been approved for a certain amount and you don't want to spend any more.
Plus, being pre-approved lets you know exactly how much you can spend. One of the best perks of being pre-approved is that the dealership will likely try to beat the interest rate you already have. That can work to your advantage in getting the lowest possible interest rate.
Additionally, once you're pre-approved, you can shop for the car as if you had a check in your pocket. This helps you keep focused on the actual selling price of the car, rather than keeping track of the interest rate, down payment, loan term and trade-in.
Interest rate vs. Down payment.
Like the age old question. Which came first, the chicken or the egg? Down-payment or interest rate, which is more important. While the down-payment will demonstrate to a lender you are financially able and willing to invest in your car purchase, the interest rate really determines the amount of your monthly car note.
However, a good down-payment will keep you from being in an upside down loan due to instant depreciation. A new car loses a significant amount of its value as soon as you drive it off the car lot.
An upside down loan is when the car owner owes more on the vehicle than it is worth. Putting a down-payment on a car loan may also get you a lower interest rate.
Keep up with monthly payments to improve your scores
Because having bad credit makes you a high-risk borrower, one missed payment can result in repossession. A repossession can stay on your credit reports for 7 years.
On the other hand, on-time monthly payments can help improve your scores. Payment history has the biggest impact on your credit scores—35%. Make your monthly payment on time, every time, or risk doing damage to your scores.
The credit scoring formula takes two different loan types into consideration when calculating your score—installment and revolving. Auto loans are considered installment loans because a fixed loan amount is paid back on a regular payment schedule over a predetermined amount of time.
Auto loans add to your credit “mix”. Another way auto loans can help your credit scores is by adding to your mix of credit. Your credit mix determines 10% of your scores. Plus, by proving your creditworthiness, you might be eligible to refinance at a lower interest rate after time.