Applying for a loan of any type with subprime credit (<600) is never a fun prospect. You’ll see plenty of double-digit APRs and face outright rejection, so it can take plenty of time and patience to find a decent offer.
Luckily, applying for auto loans with bad credit isn’t so bad. With so many players in the industry, lenders are forced to compete (yes, compete!) for your business as a subprime borrower. You’ll still see high APRs, but at least your options are greatly improved.
So what are some of the best subprime auto lenders? What pitfalls and “gotchas” should you look out for? And which lender is right for you?
Let’s explore the best car loans for bad credit.
What’s Ahead:
Overview of the best car loans for bad credit
Lender Best for APR range Term lengths Unique feature
Monevo Browsing multiple loan offers at once 2.49% - 35.99% APR 12 to 144 months Browse multiple competing offers at once
Lending Club Quick turnarounds 8.05% to 35.89% 36 or 60 months Quick turnarounds
Capital One Borrowers with low monthly income Varies 24 to 75 months Service and stability of a large bank
CarMax Getting a loan in-person Varies 36 to 72 months Shop, test drive, and finance in-person or schedule at-home appt.
Prestige Financial Borrowers recovering from bankruptcy 14.00% to varies 24 to 72 months On-time payments reduce your APR by up to 2% annually
Carvana Online car shopping 3.90% to 27.90% 36 to 72 months Buy your car completely online
Autopay Refinancing existing car loans 1.99% to varies 24 to 84 months Competitive rates on refinancing
Monevo
APR: 2.49% - 35.99% APR.- Term lengths: 12 to 144 months.
- Allows joint filing: Varies by lender.
Monevo is not a lender, but an aggregator, meaning they will show you multiple competing loan offers at once, all from reputable lenders you can trust. For that reason, it’s a great place to start your search.
I also appreciate how easy Monevo is to use. Its interface is simple, quick, and intuitive, so you can see multiple loan offers in minutes. Monevo only makes a soft credit pull (that won’t affect your credit) and it’s totally free; instead of charging you for the service, they get a kickback from the lender you eventually work with.
The drawbacks to Monevo are typical for an aggregator of any type. They’ll show you offers from some, but not all lenders out there, so you’ll still have some due diligence ahead of you. Plus, Monevo might sell your information to its partners, so you may get a few unwanted phone calls.
But overall, Monevo is still an excellent place to start your search for the best auto loan offer.
Learn more about Monevo or read our full review.
Lending Club
APR: 8.05% to 35.89% APR.- Term lengths: 36 months or 60 months.
- Allows joint filing: Yes.
Lending Club is a peer-to-peer lender, meaning you’re not borrowing money from a big bank or financial institution but real people. Everyday investors will see your request for a loan, “invest” in you, and you’ll pay them back through Lending Club just like you would a bank.
In short, LendingClub Bank offers a few key advantages for bad-credit borrowers. First, if you are approved, you might see a lower APR than you would with a big for-profit bank. Second, Lending Club can fill your bank account within days; that’s lightning-quick in the loan space since it can sometimes take a bank or a credit union weeks to process and approve your loan.
The chief drawback to Lending Club is that borrowers with poor credit aren’t guaranteed an offer. But if you get one, the pros outweigh the cons; APRs can be competitive, turnaround is quick, and you get the satisfaction of paying interest to a real-life investor.
Learn more about Lending Club or read our full review.
Capital One
APR: Varies.- Term lengths: 24 to 75 months.
- Allows joint filing: No.
Most big banks set high bars for personal loans, requiring some combination of excellent credit, high income, or a hard credit check just for a quote.
Capital One goes against the grain by requiring none of these. First, they have no minimum credit requirement, so you don’t have to approach their loan application with a sense of dread or trepidation. Plus, they only make a soft credit pull for an offer, and that offer is good for 30 days.
It’s also worth mentioning the general perks of borrowing from a big bank. You’ll get stability, a competitive fixed rate, and dedicated customer service that other lenders may not have.
Capital One’s chief competitive advantage for bad-credit borrowers, however, is its low income requirement threshold. As long as you can show proof of $1,800 in monthly income, you’ll likely qualify for a Capital One auto loan. By contrast, some lenders require $4,000 or more – even in addition to good credit.
The big drawback to financing with Capital One is that you must buy your car from one of their 12,000 approved dealerships. But if the car you want is in stock, they’re a solid choice of lender.
CarMax
APR: Varies.- Term lengths: 36 to 72 months.
- Allows joint filing: Yes.
Most brick-and-mortar dealerships and retailers will have financing options onsite, and most of the time, I wouldn’t recommend them. A dealer’s chosen third-party lender may just be the one that gives them the biggest kickback; not the best rates for the borrower. That’s why I always recommend going into a negotiation already armed with a preapproval letter.
Anyways, I’m happy to report that CarMax is the exception. They offer their own CarMax Auto Financing option, but will also rope in up to eight other third-party lenders (including Capital One) to help you get the best rate. In that way, they’re almost like an in-person loan aggregator.
The other benefit to financing with CarMax is that you can research, test drive, purchase, and finance a car all in one place. You can even have the car and financing paperwork brought to you, so you can test the car in your neighborhood and sign the papers at home. Lastly, if you find a better financing rate within three days of signing with Carmax, they’ll let you swap lenders for free.
Prestige Financial
APR: 14.00% to varies.- Term lengths: 24 to 72 months.
- Allows joint filing: Yes.
Bankruptcies have a habit of hammering down your credit score and preventing you from getting approved for all sorts of loans, not just auto loans. Thankfully, whether you’ve filed for Chapter 7 or Chapter 13, Prestige Financial may have an offer for you.
Prestige specializes in auto loans for borrowers who’ve filed for bankruptcy. Per their site, they “look at the big picture” and don’t just immediately disqualify you based on your clear and present financial challenges.
In addition to a strong customer support team, Prestige has a surprisingly low minimum income requirement ($2,250, or $2,750 for joint filers). Plus, it offers a unique interest rate reduction program; as long as you make payments on time, you can reduce your APR by up to 2.0% per year. The lowest they’ll go is 14% APR, but honestly, that’s not too bad for someone recovering from bankruptcy.
Learn more about Prestige Financial.
Carvana
- APR: 3.90% to 27.90%.
- Term lengths: 36 to 72 months.
- Allows joint filing: No.
Convenience is the name of the game with Carvana, which is best known for its automotive vending machines. When you buy a car through Carvana, the entire process is completed online, which means you can buy a vehicle from the comfort of your couch.
There’s no minimum credit score to qualify for a loan through Carvana. The only requirements are that you are at least 18 years old, earn at least $10,000 in yearly income, and have no active bankruptcies. You can even get prequalified to find out how much your interest rate will be before you proceed.
If you decide to proceed with Carvana, you’ll pick out a car, choose your financing option, and complete the application. You can choose to have the vehicle delivered to your location or pick it up at one of Carvana’s vending machine locations. There are a number of vending machines scattered across the country with more coming soon.
Once you’ve picked up your vehicle, you have seven days to try it out and return it for a refund. You’ll need to return it in the condition in which you received it, with less than 400 miles on it, to receive the full amount you paid back.
Autopay
- APR: 1.99% to varies.
- Term lengths: 24 to 84 months.
- Allows joint filing: Yes.
If you’re looking to refinance an existing car loan, Autopay can help. Autopay offers both new and refinance loan options, with competitive rates and flexible qualification requirements.
Like Monevo, Autopay is an aggregator, which means you’re shopping multiple lenders with one application. This ensures you get the best rates available, but it also means the interest rate you’re quoted can vary. You can have a credit score as low as fair (580 to 669) to qualify for a loan through Autopay, but typically you’ll need a score of at least 630 to make it through the process.
But where Autopay can really help is with refinancing a loan you took out when your score was worse. If you’ve worked hard to improve your score, Autopay can get you a reduced rate. For the best rates, you’ll need at least a good credit score.
If you’re heading out to buy a car, you can get prequalified through Autopay and know exactly how much of a vehicle you can afford. Autopay also allows cosigners on its loans, so if you have someone with stellar credit who wants to help you out, you may be able to get a good rate on that new or used car you’re buying.
How we came up with this list
To come up with this list, we vetted around 20 subprime auto lenders. To make the top five, lenders had to offer decent APRs. No subprime auto loan is going to come attached with low APR, but at least the lenders on this list got them as low as they could.
We also considered loan amount minimums. Some predatory subprime auto lenders have high minimum loan amounts ($15,000+) so they can squeeze more interest out of unsuspecting lenders. The lenders on this list had minimums of $10,000 or less.
Similarly, some unscrupulous lenders have a minimum term of 48 months, which can cost you thousands more in interest. To make this list, lenders must offer a 36-month term, which represents the sweet spot for low monthly payments and minimal overall interest.
Finally, all of the lenders on this list let you get an offer online in under 10 minutes without making a hard credit pull. Factoring into that, of course, is website optimization and a great UI.
What is an auto loan, and how does it work?
Most folks don’t have tens of thousands in cash lying around to pay for a new car in full. Therefore, they take out a loan from a financial institution like a bank or the other lenders in this list.
The basics of auto loans are pretty simple; you apply for the loan, the lender gives you a lump sum so you can buy the car, and you pay it back over time in monthly increments that include interest.
Three primary factors will dictate your monthly payment amount:
- The loan amount.
- The loan term (i.e. length).
- The APR, or interest rate.
Depending on your financial situation, you might prioritize low monthly payments or lower overall interest paid.
When browsing loan offers, you have a lot of choices over the loan amount and the loan term. Generally speaking, it’s strongly recommended that you get the smallest loan possible with the shortest term possible. In short, buy a cheap, reliable car and pay it off quickly.
The factor you have less control over is the APR. Lenders calculate your APR using countless variables, but a major player is your credit score. The lower your credit score, the higher the likelihood (in their eyes) that you’ll default on your loan. Therefore, lenders charge you higher interest to compensate for their increased risk.
How to get a car loan with bad credit
When it comes to getting a car loan with bad credit, you’ll need to follow some steps to ensure you’re getting the best rate.
Here’s a quick step-by-step guide:
- Understand how much you can really afford. Poor credit unfortunately means you’ll be saddled with a relatively high interest rate, so you need to make sure you’re not taking out a loan you can’t afford (interest and all). Use a calculator – like MU30’s Auto Loan Calculator to figure out how much you can afford to work into your budget each month.
- Make sure you have enough for a down payment. When you have poor credit, paying a larger down payment can help you have to pay less over the life of the loan and you may be able to secure a lower rate since it reduces the risk for the lender.
- Shop lenders to find the best rates. Shopping around for a few minutes can give you some serious peace of mind since you’ve done your due diligence to find the best interest rate possible. Take a look at the list above for some loan marketplace options which can show you your rates for a variety of lenders all in one place.
- Apply! Once you’ve shopped around all that’s left to do is apply fully for the loan. Like any loan, this will involve offering up a bunch of personal information and signing on the dotted line once you know your rate and have read the fine print (don’t skip this step!).
How will my credit score affect my auto loan rates?
According to data aggregated by Experian, here are the average APR rates on new and used car loans from Q2 2020.
Deep Subprime (300 - 500) Subprime (501-600) Nonprime (601-660) Prime (610-780) Super Prime (781-850)
Average new APR 13.97% 11.33% 7.14% 4.21% 3.24%
Average used APR 20.67% 17.78% 11.41% 6.05% 4.08%
For your own frame of reference, tinker with the Money Under 30 Auto Loan Calculator to see what your rates may be:
What to look for in car loans
Once you start shopping around for an auto loan, what features and aspects should you keep an eye out for?
APR
Naturally, you’ll first want to find offers with the lowest possible APR. APR is supposed to include interest plus hidden fees (it was conceived as a consumer transparency tool), but sometimes lenders like to sneak in “application fees,” so keep an eye out for those, too.
Loan amounts
Next, you’ll want to ensure that the lender can accommodate your loan amount, particularly on the low end. If you only need a $5,000 loan, make sure your lender doesn’t have a floor at $10,000.
Term options
36 months is the sweet spot; if you can’t afford monthly payments with a term of 36 months, you probably can’t afford the car. Most lenders offer 36 months as a term, but that’s just something to confirm at the front end. If you can go shorter, go shorter! Look for a lender offering 24-month terms.
Prepayment penalties
Most, but not all lenders will charge you a penalty for paying off your loan early. That’s simply because lenders profit from interest payments, and they want to recoup some of the lost interest from an early payoff.
Prepayment penalties are usually small, like $50 – $200 or a percentage of the remaining interest, but if you plan to pay off your loan quickly, it’s worth digging up in your terms and conditions.
Income requirements
Most auto lenders catering to poor credit will require proof of minimum monthly income, ranging anywhere from $1,000 to $4,000 monthly. Unfortunately, unemployment checks typically don’t count since lenders require proof of employment, as well.
Allows cosigners
If you can’t meet the lender’s minimum requirements for income, etc. or you just want to lower your monthly payments, one option is to cosign with a friend, family member, or spouse with a higher income or credit score.
However, cosigning a loan document is no small favor to ask; if you can’t make payments for whatever reason, the lender will start charging your cosigner. So cosigning is an option, but not one you should consider lightly.
Fixed or variable rates
Lastly, you’ll want to make sure that your APR offer is a fixed rate, meaning the lender can’t change it based on market conditions.
Fixed rates are better for financial planning and they protect you from surprise rate hikes. But perhaps above all, fixed rates are much, much less stressful.
Overall lender reputation
Last but certainly not least, you’ll want to consider the lender’s reputation among borrowers. As you browse user reviews on BBB and TrustPilot, be careful not to focus too much on the overall rating; many people blame their lender when they themselves didn’t read the terms and conditions.
Rather, look for reviews with valid compliments or complaints like the quality of customer service, response times, “gotcha” fees, transparency, app usability, and more.
Summary
Hopefully, this piece has helped you discover that applying for an auto loan with bad credit isn’t as stressful as you might expect. It’s quick, convenient, and you can browse multiple competing offers without making a single hard credit check.
If you can build your credit before you apply for an auto loan you should, since you could save thousands over the course of the loan (and all other loans you apply for in the future). But if you really need a new set of wheels now, these are the lenders to start with.
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