Can You Buy a Car with Bad Credit?
Having a good FICO Score certainly can make the car financing process easier, and usually a lot more affordable. Nonetheless, some consumers are still able to buy a car even while facing credit challenges.
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Your credit history and your FICO® Scores will usually play important roles when you're ready to finance your next vehicle. Having a good FICO Score certainly can make the car financing process easier, and usually a lot more affordable. Nonetheless, some consumers are still able to buy a car even while facing challenges.
Most lenders will consider your credit history and FICO® Score when you apply for a car loan. And while a higher FICO Score could certainly work in your favor, there are no industry standards that dictate a minimum score you must earn to qualify for auto financing either.
As a result, if you're willing to jump through more hoops and shop around with various lenders, you might be able to find an auto loan even if you have bad credit. But you should consider the cost of buying a car with bad credit ahead of time. When you decide to finance a vehicle with a poor FICO® Score, it might cost you thousands of dollars in extra interest over the life of the loan. And there are other downsides to buying a car with bad credit to consider as well.
What Is Bad Credit?
Before reviewing the possible consequences of applying for a car loan with bad credit, it helps to understand where “good” credit ends and where “bad” credit begins. In other words, what is the definition of “bad” credit?
FICO Scores generally range from 300-850 – except industry specific FICO Score versions for auto and credit card lending which range from 250-900. In the United States, 90% of top lenders use FICO Scores to make billions of credit-related decisions on an annual basis.
Below is a breakdown of different FICO® Score ranges and how a lender might interpret your credit risk according to score.
| FICO® Score | Range |
|---|---|
| 800+ | Exceptional |
| 740-799 | Very Good |
| 670-739 | Good |
| 580-669 | Fair |
| <580 | Poor |
As you can see from the table above, a FICO® Score of 580 or below falls under the classification of “poor” credit. In this article we'll use “bad” and “poor” interchangeably. For reference, the average FICO Score is 716 as of April 2022.
Buying a Car with Bad Credit
Each lender sets its own guidelines when it comes to approval criteria and the terms it offers borrowers. Your FICO® Score and credit history aren't the only details a lender will consider when you apply for auto financing. Yet your credit information tends to play a significant role in both your ability to qualify for a car loan and the price you pay for financing if a lender decides to approve your application.
In 2022, the vast majority of consumers who purchased new vehicles (81%) used financing to make those purchases possible, according to Experian data. And many consumers (40%) used financing to pay for their used car purchases in 2022 as well.
It's interesting to note that 16% of consumers who financed vehicles in 2022 took out “subprime” and “deep subprime” auto loans. According to Experian, these two categories of auto loans went to consumers in the following credit score ranges.
- Subprime Auto Loans: 501-600
- Deep Subprime Auto Loans: 300-500
How Bad Credit Impacts Your Car Loan
A poor score could make your car loan more expensive if you find a lender that's willing to approve your application for financing. Your FICO Score matters, along with your credit history, because it helps lenders determine the likelihood that you'll repay future debts as promised. These details can impact the terms a lender offers you— your interest, the amount of money you can borrow, and how many months you have to repay your loan.
The average price consumers paid for new, non-luxury vehicles in February 2023 was $44,697 according to Kelly Blue Book. Below is a look at some estimates from the myFICO Loan Savings Calculator to show how much a 60-month new auto loan in that amount might cost you with a poor or fair score.
| FICO® Score range | 500-589 | 590-619 |
|---|---|---|
| APR | 17.09% | 16.266% |
| Monthly payment | $1,113 | $1,093 |
| Total interest costs | $22,083 | $20,899 |
Now, take a look at the potential savings you might unlock if you worked to raise your credit and improve your FICO® Scores before you applied for a car loan. Here are some estimates of the costs of a 60-month new auto loan for the same amount ($44,697), but for a consumer with good or very good FICO Scores.
| FICO® Score range | 660-689 | 690-719 |
|---|---|---|
| APR | 9.784% | 8.098% |
| Monthly payment | $945 | $908 |
| Total interest costs | $11,999 | $9,807 |
Tips on Buying a Car with Bad Credit
In general, it's best to try to improve your credit and your FICO® Scores before you apply for a new car loan (or any other type of financing). If you seek new credit when you have a poor FICO Score, you'll likely pay higher interest rates and receive less attractive terms that could become an expensive financial burden over time.
However, if you're in a position where you need a vehicle now and you don't have time to wait, the following tips may help.
- Review Your Credit. You should check your three credit reports from Equifax, TransUnion, and Experian to make sure they are accurate and free of any fraudulent information. If you discover errors or mistakes, you can dispute them.
- Save a Large Down Payment. Providing a bigger down payment (if you can afford to do so) might make it easier to qualify for a car loan when you have bad credit.
- Don't Overcommit. It's important to know how much you can afford to spend on a new or used vehicle before you start shopping for your next set of wheels. You don't want to overcommit to a monthly payment that will strain your monthly budget and make it difficult to keep up with your other financial obligations.
- Shop Around. Take the time to shop around and compare car loan offers from multiple lenders to make sure you find the best deal available for your situation.
Bottom Line
It's not impossible to buy a car with bad credit. But if you can wait and try to improve your credit before you apply for a new car loan, you might put yourself in a better position the next time you start filling out loan applications.
Get your FICO® Score from FICO, for free. No credit card required.
Michelle Black, Founder of CreditWriter.com is a leading credit expert, financial writer, and speaker with nearly two decades of experience. Her work has been featured with major outlets such as Forbes, Reader's Digest, and U.S. News and World Report.