Tips for Buying a Car with a Low Credit Score

Buying a car with a low credit score can feel overwhelming, but with the right strategy, you can secure a loan that fits your budget and even improve your credit over time. Here’s a more detailed look at the most effective steps you can take:

1. Check Your Credit Report First

Before applying for any auto loan, it’s crucial to know where you stand. Request a free copy of your credit report from all three major bureaus—Equifax, Experian, and TransUnion—at AnnualCreditReport.com. Look for:

• Errors or outdated accounts that could be dragging your score down
• Collections or charge-offs that may need to be settled
• Credit utilization and payment history

Correcting even one error could boost your score enough to qualify for better loan terms. This step also prepares you to answer lender questions confidently.

2. Get Prequalified for an Auto Loan

Getting prequalified is one of the smartest moves you can make—especially if your credit score is below average. Here’s why:

• Know Your Budget: Prequalification gives you a clear idea of how much you can borrow and what your monthly payments might look like. This helps you shop within your means and avoid overextending your finances.
• Avoid Surprises: You’ll know your interest rate range and loan terms before stepping into a dealership, which prevents you from being blindsided by high dealer markups.
• Strengthen Negotiation Power: With a prequalification letter in hand, you can negotiate like a cash buyer. Dealers are more likely to take you seriously and may even offer better deals to win your business.
• Soft Credit Pull: Most prequalification processes only require a soft credit inquiry, which won’t affect your credit score. This allows you to explore your options risk-free.
• Compare Lenders: Prequalification lets you shop around and compare offers from banks, credit unions, and online lenders. This is especially important if you’re in the subprime or deep subprime category.

Pro Tip: Look for lenders that specialize in bad credit auto loans, such as Westlake Financial, Capital One Auto Navigator, Carvana, or local credit unions. These institutions often have more flexible underwriting criteria.

3. Shop Around for the Best Loan Terms

Don’t settle for the first offer you receive. Interest rates and loan terms can vary widely between lenders, especially if your credit score is below 600. Take the time to:

• Compare APRs from at least three different lenders
• Review loan terms, including length, fees, and penalties
• Ask about prepayment options in case you want to pay off the loan early

Even a 1–2% difference in interest rate can save you hundreds—or even thousands—over the life of the loan.

What Is the Lowest Credit Score to Buy a Car?

1. Traditional Auto Loans (Banks and Credit Unions)

Most traditional lenders prefer a credit score of 600 or higher. However, some credit unions may approve loans for scores in the mid-500s, especially if you have a stable income and low debt-to-income ratio.

2. Subprime Auto Loans

Subprime lenders specialize in working with borrowers who have credit scores between 300 and 579. These loans often come with higher interest rates—sometimes exceeding 20% APR

While expensive, they can be a stepping stone to rebuilding credit.

3. Buy Here, Pay Here Dealerships

These dealerships offer in-house financing and typically don’t require a minimum credit score. Instead, they focus on your income and ability to make payments. However, interest rates can be extremely high, and vehicles may be older or have higher mileage.

Factors That Matter Beyond Credit Score

Even if your credit score is low, lenders consider other factors when approving a car loan:

• Income: A steady job and sufficient income can offset a poor credit score.
• Down Payment: A larger down payment reduces the lender’s risk and may improve your loan terms.
• Debt-to-Income Ratio: Lenders want to see that you can manage your current debts along with a new car payment.
• Vehicle Type: Newer cars may be easier to finance than older ones, especially with traditional lenders.

4. Consider a Co-Signer

If your credit score is in the poor or deep subprime range (below 580), adding a co-signer with good credit can significantly improve your chances of approval. Benefits include:

• Lower interest rates
• Access to better loan terms
• Increased loan amount eligibility

However, co-signing is a serious commitment. If you miss payments, it affects both your credit and your co-signer’s. Make sure both parties understand the risks and responsibilities involved.

5. Make a Larger Down Payment

A larger down payment reduces the lender’s risk and can help offset a low credit score. Benefits include:

• Lower monthly payments
• Reduced loan-to-value (LTV) ratio
• Improved approval odds

Aim for at least 10–20% down if possible. Some lenders may even require it for subprime borrowers. If you’re trading in a vehicle, the equity can also count toward your down payment.

6. Avoid Long Loan Terms

While a longer loan term (72–84 months) may seem attractive due to lower monthly payments, it often results in:

• Higher total interest paid
• Greater risk of negative equity
• Longer time before you can trade or sell

Instead, aim for a loan term of 36 to 60 months. This strikes a balance between manageable payments and long-term financial health.

7. Choose the Right Vehicle

The type of car you choose can also affect your loan approval. Lenders are more likely to finance:

• Newer vehicles with lower mileage
• Certified pre-owned (CPO) models from reputable brands
• Reliable brands like Toyota, Honda, and Ford

Avoid luxury or high-mileage vehicles if your credit is poor, as these are seen as higher risk. Stick to practical, fuel-efficient models that hold their value well.

Frequently Asked Questions

Q1: Can I buy a car with a 500 credit score?

Yes, but expect higher interest rates and fewer lender options. Subprime lenders or buy here, pay here dealerships are your best bet.

Q2: What’s the best car loan for bad credit?

Look for lenders that specialize in bad credit auto loans, such as Autopay, Capital One Auto Navigator, or local credit unions. Compare APRs, fees, and loan terms.

Q3: Will a car loan help improve my credit?

Yes—if the lender reports to credit bureaus and you make on-time payments. Over time, this can significantly boost your score.

Q4: Should I lease or buy with bad credit?

Leasing is generally harder with poor credit. Buying a used car with a manageable loan is usually the better option.

Final Thoughts: Navigating the Car Market with Low Credit

While having a low credit score can make buying a car more challenging, it’s far from impossible. With the right strategy—such as shopping around, making a solid down payment, and choosing the right lender—you can secure financing and even use the opportunity to rebuild your credit. Whether you’re eyeing a dependable Toyota Corolla or a rugged Ford Escape, understanding your credit profile and loan options is the first step toward driving off the lot with confidence.