A Guide On Getting a Car Loan with Bad Credit

Jacoba Bood
Apr 27, 2022 · 9 min read
If you have bad credit, you might still be able to get a car loan. But you will also have to be more careful to avoid getting sucked into a bad loan that is hard to pay off.
Not all car loans are created equal. If you have bad credit, you might have to accept less favorable loan terms.
The intelligent insurance buying app Jerry has compiled all the information you need to know about how to get a car loan with bad credit, including avoiding scams and improving your chances of finding a loan that works with your budget.
Not only that, Jerry’s auto refinancing tool can help you find the best loan terms for the most affordable price, even if you don’t have the best credit score.
Read on to find out more about how to get a car loan without perfect credit.

Track your credit score before getting a car loan

Before you start shopping around for a loan, make sure you know your credit score.
Your score depends on factors like how much you owe, how regularly you’ve been making payments, and the overall length of your credit history. If you haven’t had credit for very long or have a history of not making your required monthly payments, your credit score will suffer.
Knowing your score can help you take immediate steps to address outstanding balances or correct any delinquencies before you apply for a car loan.
You’re entitled to a free credit report from each of the three national credit reporting bureaus—Equifax, Experian, and TransUnion—once every 12 months. You can also use third-party apps, like Credit Karma , to track your credit score.

Start saving for a good down payment

If you’ve already paid off your outstanding loans but your credit score is still low, it’s a good idea to start saving.
The more money you have to put toward a good down payment, the more likely it is that your loan will get approved. Putting more money down upfront can also help you land lower interest rates or a shorter loan term—or both.

Do your research on what loans you can afford

When the time comes to negotiate a loan, you don’t want to be caught off guard.
Having bad credit doesn’t necessarily mean that you won’t be able to secure a car loan, but you will likely have to agree to less favorable loan terms than if you had a strong credit score.
If this is the case, the best way to avoid getting stuck with a bad car loan is to do plenty of preparation in advance. Make use of online loan calculators to understand exactly what interest rate you can afford—and don’t forget to factor monthly insurance costs into the equation.
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Explore your options with lenders

When you start shopping for loans, lenders will launch hard inquiries into your credit score to determine your loan eligibility. Hard inquiries will ding your credit score and can actually make it harder for you to get a good loan.
The good news is that credit reporting bureaus will limit the deductions that can be made on your credit score for hard inquiries, as long as they are made within a short time period.
There are a few ways to minimize the impact on your credit score while you shop:

Get prequalified

A good way to avoid hard dings on your credit score is to get prequalified before you apply.
Prequalifying for a loan lets you see if you’ll be approved before you even apply, saving you time and the hassle of unnecessary hard credit checks.
To help guarantee a favorable result, shoot to prequalify with about three lenders before you start applying for loans. Prequalification will also give you a better idea of what terms you will qualify for so that you can start putting together your budget—including your car insurance costs.
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Limit your hard inquiries

Once you start seriously shopping around, try to limit yourself to a 14-day window to make your choice. Try to avoid racking up more than three hard credit inquiries during this time.
Drawing out the loan-shopping period longer than necessary could hit your credit score and make it harder to lock down a loan.
Key Takeaway Shopping around for too long can result in multiple hard credit checks that can lower your score. To avoid this, give yourself a 14-day shopping window and get prequalified for a loan so that you know what you’ll be approved for before you even apply.

Where to get a car loan with bad credit

Here are some good places to start when it comes to shopping for a car loan:
Banks/credit unions Banks and credit unions are generally considered reputable lenders and might be the best place to start. The downside is that you might have trouble securing a car loan, so apply with caution.
Online lenders One of the perks of exploring online lending options is that they often have easy-to-use prequalification tools available. Use them to determine your loan eligibility without worrying about points being docked off your credit score for a hard inquiry.
Car dealerships Car dealerships probably won’t offer you the most favorable loan terms. That said, they are in the business of selling cars. Dealerships will be more likely to go out of their way—and maybe even offer incentives—to help you secure a loan.
BHPH (buy-here, pay-here) dealerships This option should only be used as a last resort. These loans often come with higher interest rates and less favorable loan conditions.

Finalize the terms

Before you sign, always make sure the terms of the loan are completely finalized.
Some dealerships will intentionally leave certain loan terms incomplete so that they can raise the monthly payment or down payment amount later. Never agree to a loan unless all the terms are finalized.

Loan shopping tips

Here are some additional tips that can help you land a reasonable car loan—even with bad credit.
Be wary of subprime lenders Don’t be fooled by how easy it seems to take out a loan from a subprime lender.
Subprime lenders can be a tempting option for anybody with bad credit. After all, they specifically cater to people with subprime credit scores.
The catch is that you almost always end up paying interest rates that are through the roof. Signing on to this kind of loan will make it more challenging to improve your credit in the future, so think twice before signing up!
Bring a friend A second opinion never hurts, especially when it comes to something as important as your financial future.
It can be easy to get sucked into loan terms that are less than ideal when you really want to get a car loan. A friend can lend an impartial opinion that can help steer you in the right direction.
Watch for scams Watch for loans requiring you to purchase after-market products and services, warranties, or car insurance packages to qualify. If your loan contract includes non-contingent add-ons, it is best left behind.
These loans will often be offered up by subprime lenders or buy-here, pay-here dealerships.
Focus on the loan terms Don’t focus on the monthly payment, pay attention to the loan terms.
If you can afford a loan with a lower interest rate and a shorter loan term, it will be a more affordable option over the long term.
Key Takeaway As you explore your options, be wary of subprime lenders and carefully read all loan terms—it’s about much more than just the monthly payment. Bring a friend who can give you an impartial second opinion.

How to get a car loan with bad credit

There is a good chance that you will be able to get a car loan even with bad credit—but you will probably have to agree to less favorable terms.
Loans that come with high interest rates and longer loan terms can end up costing you thousands more over the course of the loan, so think about it carefully before signing up.
If possible, consider stalling on the car-buying process until you can improve your credit or save up more money for a down payment. If you need a vehicle immediately, opting for an affordable used car that comes with an equally affordable insurance rate can help make less favorable loan terms easier to digest.
If you want cheap car insurance quotes fast, go to Jerry.
A licensed broker that offers end-to-end support, Jerry gathers affordable quotes, helps you switch plans, and even cancels your old policy for you.
No long forms. No calling around. No hard work. Just savings. The average Jerry user saves $879 a year on car insurance—and that’s something that everyone can appreciate, regardless of credit score.

Jerry’s car loan comparison tool

Let Jerry also help you compare rates and find out how much you can save on your loan.
Comparison shopping is the most effective and efficient way to make sure you’re getting the best refinanced auto loan.
You can call around to compare loan terms—but who has the time (or patience) for that? To easily compare multiple rates from top lenders, use Jerry.
Jerry is your one-stop shop for auto loan refinancing.
This Jerry user was thrilled with their experience, giving the app five stars:
"Highly Recommended! My favorite thing about this app is that you can tailor a custom car insurance plan and then quickly see which company will offer that for the lowest price. Quick and painless!" — Satisfied Jerry customer

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