Applying for a loan of any kind with subprime credit, generally considered to be a FICO score below 600, can be discouraging.
Fortunately, when it comes to auto loans, people with bad credit have plenty of choices. There are a number of subprime auto lenders not only willing to work with subprime borrowers but competing to offer the best interest rates and terms. You’ll still see higher APRs than you would as a prime borrower, but you can qualify for the money you need now.
So what are some of the best subprime auto lenders and how do you decide which offer to take? Let’s explore the six best bad credit car loans.
Best bad credit auto loans
- Best for comparing offers: Monevo
- Best for refinance loans: Lending Club
- Best for low-income borrowers: Capital One
- Best for small down payments: Carvana
- Best for refinancing: Autopay
- Best for bankruptcies: myAutoloan
Best for comparing offers: Monevo
- Term lengths: 6 to 144 months
- Allows joint filing: Varies
Monevo is not a direct lender but a loan aggregator. It uses the information from your online application to determine your eligibility and show you multiple competing loan offers at once from reputable online lenders. You can look for auto loans for new and used cars or refinance an existing loan. The minimum credit score requirements, loan terms, and interest rates vary by lender, but you can filter your search to show only those that accept bad credit. Monevo tends to offer favorable loan terms and APRs on bad credit car loans.
Monevo is easy to use with a simple and intuitive interface and quick online application. When you apply, Monevo uses a soft credit pull (that won’t affect your credit) to get your personalized offers and shows you auto loans you might qualify for. There is no fee for using this platform — Monevo earns money from its partners when you apply for a loan.
Monevo is a great place to start your search if you’re not sure what you’re looking for and you want to understand your options, but you won’t be able to compare all lenders out there, and you might get a few unwanted phone calls from partner lenders.
Best for refinance loans: LendingClub
- Term lengths: 24 to 84 months
- Allows joint filing: Yes
If you want to refinance an existing car loan, LendingClub might be the best choice for you. LendingClub can help you save money on interest by lowering your APR and even shorten your loan term so you can pay off your debt faster. Even if your credit is poor now, if it’s better than it was when you first applied for your loan, you may be able to get approved for a lower interest rate and more favorable terms.
There are a few advantages to refinancing with LendingClub over others, especially if you have bad credit. If you do qualify, the APRs and terms on auto refinance loans are competitive, and LendingClub charges no origination fees or prepayment penalties. Second, LendingClub can get you the money in as little as a few days. This is much faster than the average lender, which can take weeks to process and approve your loan. To qualify, you must owe at least $4,000 but not more than $55,000 on your car and have 24 months or more left on your loan.
LendingClub accepts applicants with bad credit, but approval isn’t guaranteed. Check first to see if you prequalify.
Best for low-income borrowers: Capital One
- Term lengths: 24 to 84 months
- Allows joint filing: No
Most big banks have steep minimum credit score and income requirements for auto loans. Capital One is different. They have no minimum credit requirement, so all credit scores are accepted, and they’ll use a soft pull instead of a hard pull to find you an offer.
Capital One also has a low income requirement. If you can show proof of $1,500 in monthly income, you have a decent chance of qualifying for a Capital One auto loan. By contrast, some lenders require $2,500 or more for bad credit auto loans. Other perks of choosing Capital One include stability and dedicated customer service that smaller lenders may not have.
The biggest drawback for this lender is that you must buy a car from one of 12,000 approved dealerships. If you don’t mind this, Capital One is a good option for bad credit auto financing.
Best for small down payments: Carvana
- Term lengths: 36 to 72 months
- Allows joint filing: Yes
Carvana is known for making car vending machines and at-home car delivery a thing. But did you also know this company provides auto loans for car buyers with all sorts of different credit scores? You don’t have to use Carvana’s auto loans to use Carvana, but doing so may be a good option if you don’t have much saved for a down payment.
To qualify for an auto loan with Carvana, you need an annual income of just $4,000 per year and no active bankruptcies in your credit report. If you need a car now and can’t wait to save more money, you can trade in your current vehicle and put the money you earn toward the down payment. Using trade credit just takes a few steps out of the process. You can get prequalified with no affect on your credit score and the rates are good for 45 days.
Carvana may be worth it for people looking for convenience, but interest rates may be higher for these bad credit car loans than others.
Learn more about Carvana.
Best for cosigners: Autopay
- Term lengths: 24 to 96 months
- Allows joint filing: Yes
Autopay offers both new and refinance bad credit auto loans with decent rates and flexible 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 (which starts at 580) to qualify for a loan through Autopay, but using a cosigner can significantly improve your rate offers and odds of approval.
If you have someone more creditworthy than yourself who’s willing to help you out, consider using AutoPay to shop around. If not, you might want to consider other lenders with a lower minimum credit score requirement.
Best for bankruptcies: myAutoloan
- APR: 3.99% to
- Term lengths: 24 to 72 months
- Allows joint filing: Yes
For our final recommendation for auto loans for bad credit, we chose MyAutoloan. MyAutoloan is another loan marketplace that partners with lenders to secure prequalification offers for applicants. Income and credit score requirements vary by lender, but you can qualify with a FICO credit score as low as 575 and a gross yearly income of $21,600.
You also may be able to qualify if you have bankruptcies in your credit history. Some of myAutoloan’s partners specialize in situational bad credit car loans and accept applicants with Chapter 7 and Chapter 13 bankruptcies that have been discharged or dismissed.
The kicker with myAutoloan is that although this is an aggregator, you’ll only be able to compare up to four offers at a time, which isn’t a ton of options comparatively speaking. But if you’ve had credit trouble and just need a car loan, myAutoloan is an all-around solid option.
How do auto loans 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. This is known as auto financing. Auto loan providers can be any type of financial institution including banks, credit unions, and online lenders.
To take out an auto loan, you can apply when you’re at the dealership ready to buy or check to see how much you’re preapproved to borrow even before you’ve started shopping. If you’re approved, the lender gives you a lump sum to buy the car and you pay this back with interest.
Three primary factors dictate your monthly payments:
- Loan amount
- Loan term (i.e. length)
- APR or interest rate
Generally, the shorter your term and the greater your loan amount, the higher your payments. We recommend shorter loan terms to save on interest if you can afford it.
Lenders use your credit score, income, and credit history to determine how risky you are as a borrower and decide what APR to offer you. The worse your credit, the higher the chance (in their eyes) that you’ll default on your loan. Therefore, lenders charge more interest on car loans for bad credit.
How to choose a car loan
When shopping around for an auto loan, look into these key features.
Naturally, you want the lowest possible APR. But when you have bad credit, securing good rates is tricky. Compare loan offers from multiple lenders to get the best possible deal for you.
Fixed or variable interest rates
Make sure your APR offer is a fixed rate, meaning it will stay the same for the entire loan. This is better for financial planning and protects you from surprise rate hikes.
Choose just the right loan amount and don’t take out a dollar more than you need to. If you only need a $5,000 loan, make sure your lender doesn’t have a floor at $10,000.
Some subprime auto loan lenders have high minimums ($15,000+) so they can get you to pay more interest. Unless you need to borrow this much, avoid these lenders.
Your loan term determines how long it will take you to pay off your loan assuming you just make your minimum monthly payment each month. Loan terms can range from 24 to 96 months, but the minimum and maximum vary by lender.
You don’t want to take too long to pay off your loan if you can help it. Longer terms give interest more time to accrue, so they end up being much more expensive over time than shorter terms. Unless you don’t have the budget for larger payments, resist the urge to stretch your loan out.
Some lenders will charge you a penalty fee for paying off your loan early. This is because lenders profit from interest and want to recoup some of the lost profit from an early payoff.
Prepayment penalties are usually small, like a one-time fee of $50 to $200 or a percentage of the remaining interest. But if you plan to pay off your loan quickly, look into prepayment penalties for your lender of choice. Many lenders do not charge them.
Most auto loans for bad credit require proof of a certain minimum monthly income to show that you have the means to repay your debt. When applying, you’ll need a paycheck from the past 45 days. If you’re self-employed, use bank statements to show cash flow.
Unfortunately, unemployment checks typically don’t count since lenders may require proof of employment as well.
If you can’t meet a lender’s income or credit requirements, or you want a better rate, you may decide to ask a friend or family member to cosign. Applying with someone who has a higher credit score and income than you can help you get better auto loan rates and terms.
However, cosigning a loan document is no small favor to ask. If you can’t make the payments for whatever reason, your cosigner will become responsible.
Overall lender reputation
Last but certainly not least, you’ll want to consider a lender’s real-life reputation. Browse user reviews on BBB and TrustPilot for indicators of overall customer satisfaction. Research customer service, response times, hidden fees, transparency, app usability, and more.
How to get a bad credit auto loan
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 borrowing more than you can repay. Factor not only the monthly payments but the interest into your budget to determine what you can afford to spend on a car.
Save for a down payment. The larger the down payment you make, the less you’ll pay over the life of your auto loan. You may also be able to secure a lower rate if you’re willing to put more money down.
Shop around. Shopping around is the best way to find the lowest interest rates. It can also help you weed out lenders with terms or requirements that won’t work for you. Use aggregators and marketplaces if you’re not sure where to start.
Apply! Once you’ve shopped around, all that’s left to do is apply fully for the loan. But before applying, check to see if you prequalify. This can save you the trouble of being denied and negatively impacting your credit for nothing.
Average auto loan rates
Subprime credit will cause you to pay more interest on an auto loan than someone with a higher credit score and better credit history.
According to data from myAutoloan, the average interest rate on a new car loan for borrowers with good credit (700-749) is 10.94% and the average interest rate for borrowers with bad credit (451-599) is almost double at 20.45%. For fair credit (600-699), the average rate is 15.40%.
Auto lenders only give their best interest rates to their most creditworthy applicants. If you don’t need a car right now, it’s worth waiting a while and focusing on improving your credit. Applying with a better score can help you save hundreds.
What defines “bad credit?”
This is somewhat subjective, but most lenders would agree that anything above 600 is good or at least nonprime, and anything below 600 is bad/subprime.
Can I get an auto loan with a 500 credit score?
Yes, but you’ll be stuck with the worst interest rates and may not be approved to borrow as much as you would like to. Apply for prequalification offers before you submit any applications to avoid adding too many hard pulls to your credit report.
When should I start applying for loans?
Many borrowers wait until they’re in the dealer’s office to begin exploring financing options. That’s when the dealer will swoop in with their lender’s offer, which may or may not be the best offer (it usually isn’t). In reality, the best time to start browsing loan offers is as soon as you have a budget and know precisely how much you’ll need to borrow.
Compare prequalification offers with multiple lenders before you decide to apply for anything. And if you can wait to bring your credit score up before getting a car loan, wait.
Hopefully, you feel encouraged that there are many bad credit auto loans out there for subprime borrowers. Though poor credit does limit your options, you can still get the money you need with a great lender.
As you begin the process of shopping for cars and comparing auto loans, continue working on your credit. Even the smallest improvements can make a difference and help you save money.