How to Buy a Car Even if You Have Bad Credit

Buying a car is already a big decision, but when you have bad credit, it can feel downright impossible. The good news? You can still get behind the wheel. This guide walks you through everything you need to know about buying a car with bad credit, from understanding your credit score to securing the right car loan and avoiding common mistakes.

Can You Buy a Car with Bad Credit?

Yes, you absolutely can. Your credit doesn’t automatically disqualify you from car ownership. Many lenders specialize in working with borrowers who have less-than-perfect credit. That said, it will require a bit more planning, diligence, and patience.

Bad is generally considered a FICO score below 580, though anything under 670 is often seen as subprime by lenders. With poor credit, borrowers might face higher rates, steeper down payments, or fewer vehicle choices. However, by knowing what to expect and following the right steps, you can still make a smart purchase.

How to Buy a Car with Bad Credit

Buying a car with bad credit isn’t impossible—it just takes a strategic approach. By following these key steps, you’ll be better prepared to secure financing, get a fair deal, and avoid common traps that cost you more in the long run.

Check Your Credit Score and Report

Before doing anything else, pull your credit report from all three bureaus—Experian, TransUnion, and Equifax. You’re entitled to a free report each year at AnnualCreditReport.com. Knowing your credit score helps set realistic expectations.

Make sure you also check your utilization rate (how much credit you’re using compared to your limits) and payment history, as these affect your score the most.

Dispute Credit Report Errors

Mistakes happen, and they can cost you. Look for errors like accounts that aren’t yours, incorrect late payments, or outdated information. Dispute inaccuracies immediately by contacting the credit bureaus online or by mail. Correcting errors can sometimes raise your score by dozens of points, making a big difference.

Set a Realistic Budget

Figure out how much you can afford to spend each month on an auto loan. A good rule is the 20/4-10 rule: 20% down, a car loan no longer than four years, and monthly expenses no more than 10% of your income. Sticking to this helps you avoid financial strain.

Also, consider additional expenses like insurance, maintenance, and registration fees to avoid surprises.

Save for a Down Payment

The more you can put down, the better your auto loan terms may be. Making a larger down payment lowers the total amount you need to borrow and shows lenders that you’re financially responsible. Aim for at least 10%, but the more you can save, the better.

A strong down payment also decreases the chance of being “upside down” on your car loan — owing more than the car’s worth — which protects your finances.

Pay Down Existing Debt

Reducing your existing debt-to-income ratio can improve your chances of loan approval. Try to lower your credit card balances or pay off other debts such as small loans before applying. Even a small reduction can improve your utilization ratio and boost your credit score.

Get Pre-approved for an Auto Loan

Before visiting a dealer, shop around for preapproval through banks, credit unions, or online lenders that work with lower credit. Preapproval requires submitting financial documents like proof of income, ID, and residence.

Pre-approval gives you bargaining power at the dealership — you know what interest rate you qualify for, and you can reject high-pressure financing offers that don’t meet or beat your pre-approval terms.

Compare Lenders

Not all lenders are the same. Some lenders offer bad credit auto loans and more flexible terms. Look for loan offers with transparent fees and good customer reviews.

Credit unions often provide better rates and terms for people with lower credit, so consider joining one. Also, check online lender marketplaces that compare offers side-by-side to find the best deal.

Choose a Reliable Used Car

Avoid buying brand-new vehicles with bad credit unless absolutely necessary. Used cars from reliable brands like Toyota, Honda, or Ford can provide great value without the hefty price tag and depreciation.

Research vehicle history reports from services like Carfax or AutoCheck to avoid cars with accidents or salvage titles. Take the car for a thorough test drive, checking for engine noise, brakes, and electronics. Don’t hesitate to bring a trusted mechanic for an inspection.

Avoid Buy Here, Pay Here Dealerships

Some dealers specialize in working with borrowers with bad credit, but often charge very high rates and fees. We’ll cover why you should be cautious about these dealers in the “What to Avoid” section below.

Choose Terms Carefully

Longer car loans with terms of 72 or 84 months can lower your monthly payments, but they also increase the total interest you’ll pay. Aim for the shortest term you can comfortably afford to save money in the long run. We’ll go into more detail about this in the “What to Avoid” section.

Understand prepayment penalties or balloon payments, if any.

Finalize the Purchase and Close the Loan

Once you’ve found the car and secured financing, it’s time to sign the paperwork. Ensure you understand everything you’re agreeing to. Don’t hesitate to ask questions or request clarification.

Keep copies of all documents and confirm the lender reports your payments to the credit bureaus to help your credit score.

Make All Payments On Time

Timely payments are crucial, especially after you receive the car loan. Even one missed payment can lower your score and affect future financing options.

Set up automatic payments or reminders to avoid accidental late payments.

Monitor Your Credit After the Purchase

Keep an eye on your credit report to track progress. Seeing improvements can be motivating and help you qualify for better rates in the future.

Consider Refinancing in the Future

Once your credit improves, consider refinancing your auto loan for a lower interest rate. This can save you hundreds or even thousands of dollars over the life of the loan.

Refinancing also helps reduce your monthly payment or loan term.

Other Ways to Boost Your Odds

Consider a Co-signer

A co-signer or co-borrower with good credit can help you qualify for better rates and terms. This person agrees to take responsibility for the loan if you default, so it’s a big commitment.

Interest rates can drop significantly with a co-borrower — for example, from 20% APR to under 10%. Just make sure both parties understand the risks and obligations.

Explore Leasing Options

Leasing may be possible with bad credit, though it usually requires a higher income and a bigger down payment. Leasing means lower monthly payments but you won’t own the car at the end.

It can be a good short-term solution if you want a newer car and lower monthly costs, but it limits customization and mileage.

Use a Credit Builder Loan Before Applying

A credit builder loan is a type of small loan created to help you build or rebuild credit. Instead of receiving the money upfront, the loan amount is held in a secure account while you make fixed monthly payments. Once the loan is paid off, the funds are released to you.

How to Negotiate a Car Loan with Bad Credit

Leverage Your Pre-approval

Having a pre-approval letter in hand shows dealers you’re a serious buyer and have financing ready. Use it as a benchmark to negotiate better terms or a lower interest rate from the dealership’s lender.

Don’t Be Afraid to Walk Away

If the dealer’s terms feel unfair, you have every right to walk away. Sometimes simply leaving the dealership encourages them to offer better financing to keep your business.

Focus on the Total Loan Cost, Not Just Monthly Payments

Dealers often advertise low monthly payments by extending the loan term or adding fees. Ask for the full loan disclosure and calculate the total cost you’ll pay over time.

Ask for Lower Interest Rates or Fees

Some dealers may be willing to lower your interest rate, especially if you have a decent down payment or cosigner. Negotiating fees like documentation charges or processing fees can also save you money.

Timing Your Purchase (End of Month/Quarter)

Dealerships often have sales targets to hit by the end of the month or quarter. Shopping during these times can give you extra leverage to negotiate better financing deals or discounts.

What to Avoid When Buying a Car with Bad Credit

Long-Term Loans with High Interest

Loans stretched out over 6 to 7 years might look affordable monthly but can cost thousands more in interest. High interest rates combined with long terms can trap you into paying far more than the car’s value. Always calculate the total loan cost before committing, and try to keep your term to 48 months or less if possible.

Buy Here, Pay Here Dealerships

Buy Here, Pay Here dealerships may seem like an easy option if you have lower credit, but they usually come with very steep rates—sometimes over 20% APR—and hidden fees that can trap you in a costly loan cycle. The vehicles may also be overpriced or in poor condition. Only consider this option as a last resort, and read all terms carefully before signing.

Skipping Preapproval or Comparison Shopping

Without preapproval, you’re at the mercy of dealership financing. Shop around for bad credit auto loans to know your options and avoid overpriced loans.

Overextending Your Budget

Don’t let emotion guide your purchase. Stay within your means and avoid extras that increase your loan balance unnecessarily.

Why Credit Matters When Buying a Car

What Lenders Look For

Lenders consider your credit score, income, employment history, and debt-to-income ratio. A lower score means you may be seen as a higher risk, which impacts your loan terms and interest rates.

What Counts as “Bad Credit”?

Generally, a credit score under 580 is considered poor. Scores from 580-669 are considered fair. Anything below 670 could limit your auto loan options or increase the cost.

For example, someone with a 600 credit score might pay 15% APR on an auto loan, while a 700+ score might get 5% APR or lower.

Final Thoughts: Stay in the Driver’s Seat

Bad credit doesn’t have to mean no car. By doing your homework, shopping smart, and using tools like Dovly to improve your score, you can still drive off with a reliable vehicle.

Let Dovly help you take control of your credit and unlock better car financing options. Enroll for free and start seeing results fast.