How to Buy a Car When Your Credit Score Is Low

You can buy a car with a low credit score, but you will pay more for it

A low credit score does not lock you out of car buying. Dealerships, credit unions, and banks all lend to people with scores below 620. What changes is the interest rate you pay and the terms you get. Someone with a score of 580 might pay 12 to 18 percent interest on a five-year loan, while someone with a score of 750 might pay 4 to 6 percent. Over five years, that difference adds thousands of dollars to what you owe.

The real barriers are not the credit score itself but what caused it. If you have unpaid collections, recent late payments, or a bankruptcy still on your record, lenders will either turn you down or charge you much more. If your score is low because you have little credit history—not because you missed payments—you have a better chance at reasonable terms.

Your options break into three paths: buy from a dealership that specializes in subprime lending, borrow from a credit union, or get a co-signer. Each has different costs and different requirements.

Key Takeaways

• Interest rates for people with low credit scores typically range from 12 to 18 percent, meaning you will pay thousands more over the life of the loan than someone with good credit.
• Dealerships that advertise "bad credit, no problem" or "buy here, pay here" charge the highest rates and often require a down payment of 20 to 30 percent.
• Credit unions usually offer lower rates than dealerships and may consider factors beyond your credit score, such as employment history or savings.
• A co-signer with good credit can lower your interest rate significantly, but they become legally responsible if you stop paying.
• The car itself matters: buying used costs less upfront but may have hidden repair costs, while buying new means the warranty covers repairs for several years.

What dealerships that specialize in subprime lending actually cost

Subprime dealerships—the ones with signs saying "bad credit, no problem" or "buy here, pay here"—will sell to almost anyone with a job and a down payment. They expect to make their money from the interest rate, not from selling you a good car. Interest rates run 15 to 29 percent, and they often require a down payment of 20 to 30 percent of the car's price.

Some of these dealerships use GPS trackers and starter interrupt devices, which let them disable your car remotely if you miss a payment. Read the contract carefully before you sign. The car itself is often older, with higher mileage, and may have mechanical problems that show up after you drive it home. You have no warranty protection.

The advantage is speed: you can walk out with a car the same day. The disadvantage is cost. On a $10,000 car with 20 percent down and 20 percent interest over five years, you will pay roughly $13,000 in total interest alone.

Credit unions and banks that work with lower credit scores

Credit unions typically charge 2 to 4 percentage points less than subprime dealerships, and they may lend to you even if your credit score is below 620. They also tend to be more flexible about what they consider when deciding whether to lend. A credit union might look at your employment history, how long you have banked with them, or whether you have savings, not just your credit score.

To borrow from a credit union, you usually have to be a member. Membership requirements vary—some credit unions are open to anyone who lives or works in a certain county, others are open only to employees of a specific company or members of a specific organization. You can search for credit unions near you on the CO-OP Network or Shared Branch locator websites.

Banks also lend to people with lower scores, but their rates are usually higher than credit unions and closer to dealership rates. The advantage of a bank is that you may already be a customer, so the process is faster. Call your bank's auto lending department and ask what rates they offer for your credit score range.

Using a co-signer to lower your interest rate

A co-signer is someone with good credit who signs the loan with you and becomes legally responsible for the debt if you do not pay. Lenders will approve you at a much lower rate if your co-signer has a credit score above 700. The rate drop is usually 3 to 8 percentage points, which can save you thousands over the life of the loan.

The catch is that the co-signer's credit is on the line. If you miss payments, it damages their credit score. If you default entirely, the lender can pursue them for the full amount owed. Make sure your co-signer understands this before they sign.

A co-signer does not have to be on the title or own the car. They are only responsible for the loan. Some lenders will let you remove the co-signer after you have made 12 to 24 on-time payments and your credit has improved, but you have to ask about this before you sign.

Deciding between a new car and a used car

A used car costs less upfront, which means a smaller loan and lower monthly payments. But you are buying someone else's problems. The transmission might fail at 100,000 miles. The engine might have a hidden crack. You have no warranty, so you pay for repairs out of pocket.

A new car costs more, but it comes with a manufacturer's warranty that covers repairs for three to five years or 36,000 to 60,000 miles. You know the car has not been abused. Your monthly payment will be higher, but your repair costs will be lower or zero during the warranty period.

If you buy used, have a mechanic inspect the car before you buy it. This costs $100 to $200 but can save you thousands by catching problems early. If you buy new, compare warranty lengths across brands—some cover more than others.

What to bring when you apply for a car loan

Lenders will ask for proof of income, proof of residence, and a government-issued ID. Bring recent pay stubs (usually the last two months), a recent utility bill or lease agreement, and your driver's license. If you are self-employed, bring tax returns from the last two years.

You will also need to know what you want to buy or at least the price range. Lenders use the car's value to decide how much they will lend. If you want to borrow $15,000 but the car is worth $12,000, they may lend you only $12,000 and ask you to cover the difference.

Bring proof of insurance or be ready to buy it before you drive the car off the lot. Most lenders require full coverage (collision and comprehensive) on financed vehicles, not just the liability insurance your state requires.

How to improve your credit score while you are paying off the car

Every on-time payment on your car loan helps your credit score. After 12 months of on-time payments, your score usually rises 30 to 50 points. After 24 months, it can rise 50 to 100 points. This matters because it opens the door to refinancing at a lower rate.

Once your score reaches 650 or higher and you have made at least 12 on-time payments, contact your lender or a different bank and ask about refinancing. If your score has improved enough, you might may have access to for a rate 3 to 5 percentage points lower. On a $12,000 loan, that can save you $1,000 to $2,000 over the remaining term.

While you are paying off the car, do not miss any payments on anything else. Do not open new credit cards or take out new loans. Do not let old debts go to collections. Every negative mark on your report works against you.

Frequently Asked Questions

Can I get a car loan if I have a bankruptcy on my record?

Yes, but lenders will charge you a higher rate and may require a larger down payment. Most lenders will work with you if your bankruptcy was discharged at least two years ago. Chapter 7 bankruptcies are viewed more favorably than Chapter 13 because they are fully resolved. Bring documentation of your discharge when you apply.

What if I do not have a down payment?

Some credit unions and banks will lend with zero down, but your interest rate will be higher and your monthly payment will be larger. Subprime dealerships usually require 20 to 30 percent down. If you can save even $1,000 to $2,000, it reduces the amount you borrow and lowers your total interest cost.

Should I buy the extended warranty the dealership offers?

Extended warranties are expensive and often cover things your manufacturer's warranty already covers. If you buy a used car with no warranty, an extended warranty may be worth considering—but shop around. Independent warranty companies are often cheaper than dealership warranties.

What happens if I cannot make a payment?

Contact your lender immediately. Many will work with you on a late payment if you call before the due date. Some offer forbearance, which temporarily lowers or pauses your payment. If you ignore the payment, the lender can repossess the car, and repossession damages your credit score and leaves you without transportation.

Can I trade in my old car to lower what I owe?

Yes. The dealership or lender will appraise your old car and subtract its value from the price of the new one. This lowers the amount you need to borrow. If you owe money on the old car, the new lender will usually pay off that loan as part of the deal, but you will owe the difference if the car is worth less than what you still owe.