Navigating Car Purchases Without Established Credit or a Cosigner: Is It Feasible?
If you’re trying to get a car with bad credit, don’t lose hope. Even with a low FICO score, you can still secure a car loan, though it might come with a higher interest rate.
A poor credit score can result from late payments or a limited credit history. Scores below 650 or 660 are considered “subprime,” meaning lenders see them as risky. However, this doesn’t mean you can’t get a loan.
Bad credit car financing is available, but it has its pros and cons. The good news is that people with low credit scores can still get loans, including subprime auto loans, which can be crucial for those needing a car for work or school. The downside is that these loans often come with higher interest rates.
To improve your chances of getting a car loan with bad credit, start by checking your credit report. Order your credit report from Experian, Equifax, or TransUnion several months before you begin your loan search. By law, you can get one free report from each agency annually. Knowing what’s on your credit report and finding lenders willing to work with limited credit history can help you secure a better interest rate.
Identify any negative marks on your report, including errors, and work to fix them. Improving your credit score can help you get better loan terms. While getting your actual credit score costs money, it can prepare you for the interest rates lenders might offer.
When applying for a car loan with bad credit, start with your credit union or bank, as you already have a relationship with them. Joe Giranda, the director of sales and marketing for CFR Classic, suggests looking for lenders with less strict eligibility requirements. Subprime lenders specialize in working with people with less-than-perfect credit but often charge higher interest rates to offset the risk. Credit scores in the subprime range typically sit between 580 and 619, but there’s no strict cut-off.
Even borrowers with FICO scores under 500 can get approved for car loans, though with higher interest rates—around 14.08% for new cars and 21.32% for used vehicles. Giranda also recommends putting at least 20% down to make the loan balance more manageable. This might require more time to save up, but it’s part of the car purchase process—building up savings, strengthening your credit history, and finding the right financing options.