How to Buy a Car With Bad Credit (Or With a Credit Card)
You can buy a car with bad credit, but you will usually pay a much higher interest rate, so the goal is to limit how much that costs you. The best approach: check your credit report, set a realistic budget, save a bigger down payment, get pre-approved by a credit union or online lender before visiting dealers, consider a co-signer, and choose a cheaper, reliable used car on the shortest loan you can afford. Avoid buy-here-pay-here lots unless you have no other option.
This guide covers typical rates by credit score, a step-by-step plan, what a high rate really costs, whether you can use a credit card to buy a car, and the traps to avoid.
Key Takeaways
- Bad credit loans exist, but rates for subprime borrowers are often in the mid-teens or higher.
- Pre-approval first: credit unions and online lenders often beat dealer financing.
- Put more down and borrow less to reduce interest and the risk of owing more than the car is worth.
- Credit cards: dealers often cap card payments at a few thousand dollars and may add a fee.
- Refinance later once your credit improves after 6–12 months of on-time payments.
Auto Loan Rates by Credit Score
Rates change every quarter. Recent Experian data on the auto finance market has shown averages roughly in these ranges:
| Credit tier (approximate score) | New car loan | Used car loan |
|---|---|---|
| Super prime (781–850) | About 4–5% | About 6–7% |
| Prime (661–780) | About 5–7% | About 8–10% |
| Near prime (601–660) | About 8–10% | About 12–14% |
| Subprime (501–600) | About 12–14% | About 18–19% |
| Deep subprime (300–500) | About 15–16% | About 21–22% |
Your actual rate also depends on your income, debt, down payment, the car’s age and the loan term.
What a High Interest Rate Really Costs
Here is a $15,000 loan over 60 months at two different rates:
| Interest rate | Monthly payment | Total paid | Interest paid |
|---|---|---|---|
| 7% | About $297 | About $17,821 | About $2,821 |
| 18% | About $381 | About $22,855 | About $7,855 |
The higher rate costs about $5,000 more on the same car. That is why improving your credit, putting more down and refinancing later are worth the effort.
How to Buy a Car With Bad Credit: Step by Step
- Check your credit reports for free at AnnualCreditReport.com and dispute any errors.
- Know your score, so you can judge whether offers are reasonable.
- Set a budget that includes insurance, fuel and maintenance, not just the payment.
- Save a down payment: 10–20% or more lowers the loan amount, can improve your rate and reduces the chance of being upside down.
- Get pre-approved by a credit union, your bank or an online lender before shopping. Several applications within about two weeks usually count as a single inquiry for scoring purposes.
- Consider a co-signer with good credit, who becomes legally responsible if you do not pay.
- Choose an affordable, reliable car: a lower price means a smaller loan and lower insurance.
- Keep the term short: 72- and 84-month loans lower the payment but greatly increase interest.
- Negotiate the price first, then compare the dealer’s financing with your pre-approval.
- Read every line of the contract and decline add-ons you do not want.
Buying a Car With No Credit History
No credit is different from bad credit. First-time buyer programs from some automakers, credit unions and co-signers can help. Showing stable income, a larger down payment and proof of on-time rent or utility payments can also improve your chances.
Can You Buy a Car With a Credit Card?
Sometimes, but usually only part of the price. Many dealers accept a credit card for the down payment and cap card payments at somewhere around $2,000 to $5,000, although some allow more. Dealers may add a processing fee of 2–3%.
| Pros | Cons |
|---|---|
| Earn rewards on a large purchase | High card interest rates if you carry a balance |
| A 0% intro APR card can act as a short interest-free loan | Card limits and dealer caps usually prevent paying the full price |
| Some cards add purchase protections | Processing fees can outweigh rewards |
| A big balance raises your credit utilization and can lower your score |
Using a card only makes sense if you can pay the balance off quickly or within a 0% intro period. For bad-credit buyers, card interest is usually far higher than even a subprime auto loan.
Buy Here Pay Here Dealers: Proceed With Caution
Buy-here-pay-here lots lend their own money and often approve buyers others turn down, but the trade-offs can be severe: very high interest rates, higher car prices, weekly or biweekly payments, GPS trackers or starter-interrupt devices, and fast repossession after a missed payment. Some do not report on-time payments to the credit bureaus, so the loan may not help rebuild your credit. Consumer protection agencies warn buyers to read contracts carefully. Try credit unions and online lenders first.
Traps to Avoid
- Focusing on the monthly payment: a long term hides a high total cost.
- Loan packing: extended warranties, GAP, credit insurance or add-ons bundled into the loan without clear explanation.
- Spot delivery or “yo-yo” financing: driving home before financing is final, then being called back to sign a worse deal. Get financing confirmed in writing.
- Zero down on a high-rate loan: you will owe more than the car is worth for years.
- Skipping the inspection on a used car because you feel lucky to be approved.
After You Buy: Rebuild and Refinance
- Set up automatic payments so you never miss one.
- Make sure the lender reports to the credit bureaus.
- After 6–12 months of on-time payments and a better score, shop for refinancing to lower your rate.
- Pay extra toward principal when you can, after checking there is no prepayment penalty.
Try the calculator: use our car loan calculator to estimate your monthly payment.
Bad Credit Car Buying FAQ
Yes. Many lenders offer subprime auto loans, but interest rates are higher. A larger down payment, a co-signer and pre-approval from a credit union can improve your terms.
There is no single minimum. Buyers with scores below about 600 can often get approved, but rates rise sharply as scores fall.
Recent data shows subprime borrowers paying roughly the low-to-high teens for new car loans and around 18 to 22 percent for used car loans, depending on the score and lender.
Often only part of the price. Many dealers cap card payments at a few thousand dollars and may add a 2 to 3 percent fee.
Get a pre-approval from a bank, credit union or online lender first, then let the dealer try to beat it. This gives you a benchmark and bargaining power.
Usually only as a last resort. They often charge very high rates and prices, require frequent payments and repossess quickly.
Yes. A co-signer with good credit can help you qualify and get a lower rate, but they are legally responsible if you miss payments.
Yes. After 6 to 12 months of on-time payments and an improved credit score, refinancing can lower your interest rate and payment.
