Credit scores reflect financial activities over the years. It’s important to build a good credit score because it can take a long time to fix a bad one. If you already have a bad credit score, this does not mean you can no longer apply for a loan. Rule of thumb is, the higher your credit score, the better your chances of getting a loan approved and the better the rates. But don’t worry, there are plenty of options for people with less than stellar scores.

Loans for People with Credit Scores Below 600

Bad credit scores are brought about by various financial factors. This can flag you as a risk for the lenders when you are applying for a loan. But what is considered a “bad credit score”? There is a difference between poor credit and bad credit, however, most creditors generally flag credit scores below 600 as bad credit. So if your credit score is within the “bad” category, you should consider improving it as it will end up saving you a lot of money. You don’t have to wait too long to start seeing improvements. That being said, people with bad credit still get approved for loans. The following section discusses recent financial activities in the auto loan industry for the different credit score categories.

Credit ScoreAverage monthly paymentAverage interest rates
300 – 500$395 $52419.51%14.93%
501 – 600$392$54016.72%12.14%
601 – 660$379$54310.63%7.55%
661 – 780$372$5305.94%4.45%
781 – 850$371$4984.19%3.47%

The table above based on a 2018 Experian report summarizes the average rates and monthly payments for each credit score level for both new and used car loans. The average interest rate for credit scores 600 and below is from 7.55% to 19.51%. It is also evident that interest rates are significantly higher for financing used vehicles, and the disparity between rates for used and new for credits below 600 is high. People with bad credit end up paying more for their car loans. The direct correlation between credit scores and average monthly payments and interest rates comes from the risk assessment of creditors. People with bad credit are seen as high-risks by lenders and so want to be compensated for taking on that extra risk. So if the risk of you defaulting on your payment is higher, you are given loan terms with higher interest rates which translate into higher monthly payments.

Credit ScoreAverage Loan Amounts
300 – 500$15,130$25,368
501 – 600$16,639$28,304
601 – 660$19,448$32,172
661 – 780$21,369$32,706
781 – 850$20,816$28,637

The total average loan amount for old vehicles is $19,708 and $30,958 for new vehicles. When your credit score is below 600, the loan amount decreases. This reflects the perceived ability of the borrowers to pay off the debt. The loan amounts depend on the vehicle you are trying to purchase, so make sure you are going for a car that you can afford to avoid losing credit points due to late payments or default payments.

In 2018, 86.1% of new vehicles and only 55.16% of used vehicles were purchased through some kind of financing. However, there are more used cars with financing at 55.79% of the total number of loaned cars compared to new cars. This could be a result of high interest rates for used car loans, especially for those with credit scores lower than 600. The average credit score for used car loans is 655 and 715 for new car loans, and these rates have been steadily improving over the years.

Frequently Asked Questions

Can I still get a car loan without a credit check?

There are auto loans that don’t have credit checks. However, they are more expensive with higher rates, longer loan terms, and large down payments. If you still want a car loan with no credit check, it’s possible if you have other means of providing proof of your capacity and reliability to pay back your debt. You can use the following documents:

  • Paycheck from employer- The longer your employment is at your current job, the better your chances
  • Utility bills- Bills under your name can be used as proof that you consistently pay them on time
  • Other previous loans- Previously paid loans can also be used as proof if they were paid in a timely manner
  • Assets under your name- Proof of ownership of any valuable assets can be considered as more proof; these can also be taken in as collateral

I have negative equity. Can I still get a car loan?

Negative equity is when the borrower ends up owing more money on the car loan than the actual current market value of the vehicle. It’s common for people who get car loans especially for those who buy cars above their financial capacity, those who had zero down payments, and those who have high interest rates and/or long loan terms. This becomes a problem when you want to trade-in or sell your car because you will end up paying for the difference of the car loan and the actual market value. You can still get a car loan with negative equity and it can be rolled-over to your new loan. Of course, you will be paying more when your negative equity is included in the computation of your new car loan.

This negative equity on car loans is the same concept as upside down loans. Upside down loans happen when the amount you owe is more than the actual market value of the loaned item. It usually happens when the item depreciates quickly over time. The payment you make monthly goes to the interest and loan balance, so make sure you get to pay off your loan entirely before the item loses value.

How do I find low interest car loan rates if I have bad credit?

Looking for the best deal for your car loan requires a lot of patience and research. First and foremost, know your credit score! Be careful though, as frequent checking may affect your credit score. Shop around for the best auto loan deals and don’t just limit yourself to one or two lenders. You will be offered different loan terms from each lender, so compare all, shop around and make sure you compare the right terms. We can help you connect with multiple lenders by clicking here

Can I still get auto financing after bankruptcy?

There may be added difficulties to getting a car loan if you filed for bankruptcy, but it’s still possible. You would usually have to wait after your situation gets better before you consider getting a car loan. If you filed for Chapter 7, you can apply for auto financing after you get your discharge order. If you filed for Chapter 13, you can either wait for your discharge order or request for court permission to finance a vehicle while waiting for your case to be over.  

Can I still get a loan with pre-approval?

Getting pre-approval for your loan might be worth your time before your car shopping starts. It’s a hard-pull of your credit report, so better get pre-approval from more than 1 dealer so the requests from multiple lenders will only count as one. It’s a good step to check what you can expect with regards to the loan amount and interest rates you qualify for with no strings attached. As you will be receiving different offers from different dealers, you can use this valuable piece of information to negotiate with the auto dealer. It can also serve as your shield from upsells when finalizing your auto loan deal. However, a hard pull on your credit may affect it negatively. If you’re not quite sure yet, try getting pre-qualified first for a “soft-pull” of your credit report. You will only get estimates as compared to more conclusive pre-approval results, but it’s better than losing a couple of credit points for a car loan you’re not sure of getting.

Refinancing Car Loans with Bad Credit

Refinancing a car loan means paying your old loan off with a new loan, usually from a different lender that offers better loan conditions. You can refinance your car to lower your monthly payments, decrease interest rates, extend loan terms, and other purposes. You should think twice before refinancing your car because it isn’t the best decision when:

  • Most of your original auto loan has been paid off
  • The fees for your new car loan outweigh the benefits of refinancing
  • When your vehicle has accumulated a high number of miles- cars depreciate quickly, and you won’t be able to refinance older cars or those with over 75,000 miles with some lenders

It only makes sense to refinance your car when:

  • Your financial situation gets better, thus, improving your credit score- you may get lower interest rates when you refinance your car when the creditor sees a higher credit score
  • Interest rates have decreased since you first got car loan approval
  • You want to decrease your monthly car loan payments because you can’t keep up with your monthly bills/expenses

It’s not always wise to refinance your car. So assess your financial situation and the benefits you will reap from refinancing your car to know if it’s the best course of action to take. You can still refinance your car loan even with bad credit but as was mentioned, make sure that it’s worth getting that new loan.

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