How to get a car loan with bad credit

Trying to get a car loan with bad credit can feel like an exercise in frustration. But like parallel parking a minivan or navigating the DMV, getting a good loan with subpar credit is difficult, but far from impossible. Here's what you need to do to make it happen.

"The first thing I always tell anyone is, before we go into any loan or purchase, let's check your credit and know where you stand," said Amy Miller, Accredited Financial Counselor and program manager at America Saves.

While the factors that exert the greatest influence on your credit score — payment history and total debt — take time to build, you may have mistakes on your credit report (like a debt you know you paid off) that you can quickly resolve. Doing so would give your score a boost and put you in a better position for the car loan.

With bad credit car loans, your down payment can sometimes help offset your low score and secure more favorable terms. "The [credit] score is not the real driver here," said Yossi Levi, founder and CEO at Car Dealership Guy and a former car dealer. An incremental 15-point bump in your credit score won't make as much of a difference as having a larger down payment. Your down payment puts skin in the game so the lender knows you have something to lose. Plus, as you increase your down payment, your monthly payment goes down.

There's no standard for what the down payment should be on a vehicle. But to give you an idea of what people actually pay, Edmunds reported that in the third quarter of 2024, the average down payment for a used car was nearly 13% of the vehicle's price ( and almost 14% for new cars).

As a subprime borrower, you'll have a better chance of getting approved for a loan for a used car, which will usually cost less than a new car.

Levi worked in auto sales for over a decade and the majority of work was with buyers with bad credit. He said business usually slows down for used-car dealers around the holiday season at the end of the year and gets busier during tax refund season. If you're flexible with when you buy a car, shopping when business is slow might give you a slightly stronger negotiating position.

Even though your lower credit score will limit your options, you should still compare different loan offers before agreeing to a deal.

When you're comparing loan options, MyAutoloan is an online marketplace that can help with the process. You can quickly receive up to four pre-qualified offers and won't have a hard pull on your credit until you apply for an offer.

If you're looking for a smaller loan amount, you may want to consider CarMax Auto Finance because it offers loans starting at $500. It also has a 100% online application process and no early payoff fees.

You also should consider options close to home. "I always tell people, look at your local banks and credit unions," Miller said. "Some may have a program for those on the poor side of credit." A good place to start is with the financial institution you currently do business with. If you have a solid track record with your local bank or credit union, you may receive some flexibility with certain loan requirements. Miller said that when she was working at a credit union, it could make exceptions for long-time members in good standing.

At CNBC Select, we work with experts who have specialized knowledge and authority based on relevant training and/or experience. For this story, we interviewed Amy Miller who is the program manager at America Saves, an initiative of the Consumer Federation of America. She is also an Accredited Financial Counselor® and her previous experience includes working in auto lending with credit unions. We also spoke with Yossi Levi, the founder and CEO at Car Dealership Guy. He was previously a car dealer for over a decade with a focus on subprime auto sales.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every article is based on rigorous reporting by our team of expert writers and editors. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

Catch up on CNBC Select's in-depth coverage of credit cards, banking and money, and follow us on TikTok, Facebook, Instagram and Twitter to stay up to date.