The most important financial decisions you’ll make is getting an auto loan with bad credit. Deep subprime borrowers pay interest rates of 14.78% for new cars and 21.55% for used vehicles, according to Experian’s recent data. A $30,000 new-car loan over 60 months could cost borrowers with the lowest credit scores an extra $9,000 compared to those with excellent credit.
Bad credit shouldn’t stop you from getting an auto loan. The proof lies in numbers – 14% of people who financed or leased a car in 2024 had credit scores below 601. Traditional banks or credit unions might turn away people with scores under 580. Yet specialized lenders are ready to help finance a car with bad credit. They even work with customers who earn as little as $1,500 monthly.
This piece dives into everything in bad credit auto loans that lenders don’t tell you upfront. You’ll learn about what counts as bad credit in 2025. The eight best options for bad credit auto loans will help you decide. We’ll show you hidden lender practices and ways to boost your approval chances. The applicable information here will guide your decision to buy or refinance a car with bad credit.
The truth about bad credit auto loans
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Bad credit auto loans work in complex ways that many people don’t understand. Borrowers who face credit challenges need to know how these loans work.
What qualifies as bad credit in 2025?
Credit scoring systems rank borrowers based on their risk levels. A FICO score below 580 or a VantageScore below 601 falls into the bad credit category in 2025. Lenders rank credit scores this way:
- Super prime (781-850): Excellent credit
- Prime (661-780): Good credit
- Near prime (601-660): Fair credit
- Subprime (501-600): Poor credit
- Deep subprime (300-500): Very poor credit
Car lenders label scores below 601 as “subprime,” and deep subprime represents the riskiest category. 16.7% of all auto loans qualified as subprime in Q2 2024. This shows that people can still get car financing with bad credit.
How lenders see subprime borrowers
Each type of lender takes a different approach to subprime borrowers. Banks and credit unions prefer working with higher credit scores. Finance companies and buy-here-pay-here dealerships focus on the subprime market.
These choices lead to clear results. Bank loans to subprime borrowers have a 15% chance of falling behind within three years. Finance companies and buy-here-pay-here loans show much higher rates at 25-40%.
The digital world looks different in 2025. Lenders have stricter rules now because more people fall behind on payments. Subprime borrowers hit a 6.6% delinquency rate in January 2025—the highest since records began in 1994.
Why interest rates are higher for bad credit
Prime and subprime borrowers see a big gap in interest rates. Deep subprime borrowers paid average rates of 15.81% for new cars and 21.58% for used ones in Q1 2025. Super prime borrowers paid just 5.18% and 6.82% respectively.
This big difference exists because:
- Higher default risk: Lenders need protection against missed payments
- Recovery costs: Repossession and collection activities cost money
- Market positioning: Subprime lenders pay more to get their own funding
Here’s what this means: A $14,000 used car loan over 60 months costs deep subprime borrowers $8,985 in interest. Someone with excellent credit pays only $2,685.
8 best auto loans for bad credit in 2025
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The right lender can make your car-buying experience much better when you have credit challenges. Here are the best options to look at in 2025 if you’re a subprime borrower.
1. Carvana – Best for online car buying
Carvana shines with its complete online car-buying system. They accept 99% of applicants [link_1] and work with borrowers who have any type of credit. You can get pre-qualified in just two minutes without hurting your credit score. On top of that, your approved terms stay good for 30 days, so you can shop with confidence. You won’t need to visit a dealership, and Carvana’s pricing is clear – no hidden fees or price changes based on credit.
2. Capital One – Best for prequalification
Capital One’s Auto Navigator tool lets you check rates without affecting your credit score. You can see your rates and adjust terms until you find what works best. Their auto loans start at $4,000 with terms from 24 to 84 months, and they help borrowers who have difficult credit histories. The best part? There are no early payoff fees.
3. CarMax – Best for used car selection
CarMax welcomes most credit types and treats every customer the same way. Their quick prequalification tool shows your options in under five minutes without touching your credit score. They work with several finance companies, which makes them a great choice for first-time buyers who haven’t built much credit yet. You’ll also get 10 days to return the car if needed.
4. Autopay – Best for refinancing options
Autopay does refinancing really well, with rates that start at 4.67% [link_2]. They’ve made refinancing simple and offer loans from $2,500 to $100,000 that you can pay back over 24 to 96 months. You can get cash back (up to $12,000) or refinance a lease buyout. Their big network of lenders helps people with all kinds of credit scores.
5. Westlake Financial – Best for low down payments
Westlake Financial knows how to help subprime borrowers through their Standard Program if your credit score is 0-599. You might not need any down payment, and you can take up to 72 months to pay. They’ll even work with you if you have an open bankruptcy or hard-to-prove income. Loans go up to $25,000, perfect for budget-friendly vehicles.
6. iLending – Best for long repayment terms
iLending gives you up to 96 months (8 years) to pay – much longer than the usual 72-month limit. Even with bad credit, they help find better terms, and their customers save about $148 each month after refinancing. They look at your whole picture – income and debt-to-income ratio count just as much as credit scores.
7. MyAutoLoan – Best for comparing multiple offers
MyAutoLoan connects you to several lenders with one simple two-minute application. They work with credit scores as low as 600 if you make at least $21,600 yearly ($18,000 for refinancing). Money shows up within 24 hours after approval, so you can buy your car faster. You’ll see up to four different offers side by side to pick the best one.
8. Credit Acceptance Corp – Best for unemployed borrowers
Credit Acceptance Corp helps people who usually can’t get car financing. They say yes to unemployment income, fixed income, and bankruptcy history. You can find them at dealerships all over the country, and they’ll give written approval no matter what your credit looks like. They report to all three major credit bureaus, so paying on time could help rebuild your credit.
Hidden lender practices you should know
Flashy advertisements for bad credit auto loans hide several industry practices that could hurt your financial health.
Prepayment penalties and hidden fees
Lenders often charge prepayment penalties if you pay off your loan early. These fees usually cost 2% of your remaining balance. A $7,000 remaining balance would cost you an extra $140. These penalties are legal in 36 states and Washington D.C. for loans under 60 months. The fees make it harder to refinance and stop borrowers from paying down their principal faster.
How dealers mark up interest rates
Dealers who arrange financing get a “buy rate” from lenders. They mark this up before showing you the “contract rate”. About 78% of dealer-arranged loans come with marked-up interest rates, averaging 1.08 percentage points higher. Subprime borrowers pay even more, with markups from 2.84% to 5.04%. These markups add $25.8 billion in hidden interest across many car loans. Higher rates lead to 12.4% more defaults and 33% more repossessions for subprime borrowers.
The truth about ‘no credit check’ loans
“No credit check” or “buy here, pay here” dealers offer in-house financing with much higher rates. Deep subprime borrowers might pay around 20.45% APR on used cars. These dealers claim to help rebuild credit but often report only negative information to credit bureaus, not your good payment history. Your on-time payments might not boost your credit score, but late payments will damage it.
Why some lenders push longer loan terms
Six-year or longer auto loans are becoming popular but carry more risk. Default rates for six-year loans hit 8%, double the rate of five-year loans. Borrowers with six-year loans have average credit scores of 674—39 points below five-year loan borrowers. These longer terms finance bigger amounts ($25,300 for six-year loans vs $20,100 for five-year loans). A six-year loan leaves you with $2,000 more to pay after three years compared to a five-year loan.
How co-signers are used to move risk
Co-signing makes you equally responsible for payments without giving you rights to the vehicle. Lenders can collect from co-signers without trying to collect from primary borrowers first. Three out of four co-signers end up paying defaulted loans. Missed payments hurt both borrowers’ credit scores, and repossession could lead to lawsuits against both parties.
How to improve your chances of approval
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Getting approved for an auto loan with bad credit needs smart planning and the right approach. You can still get better terms even with credit challenges if you follow these practical steps.
Check and fix your credit report
Your first move should be to look at your credit report for errors. You can get free weekly credit reports from all three major bureaus (Experian, Equifax, and TransUnion) at AnnualCreditReport.com. Take time to review each section and look for mistakes in account statuses, balances, and personal information. If you spot errors, dispute them with both the credit bureau and the company that provided the information. Credit bureaus must look into disputes within 30 days. Sometimes this simple process can lift your score enough to help you get better rates.
Use a co-signer or co-borrower wisely
Your chances of approval go up when you add a co-signer with good credit. A co-signer takes equal legal responsibility for the loan but doesn’t get ownership rights to the vehicle. A co-borrower might work better if you’re dealing with income issues rather than credit problems. Co-borrowers share both their income and vehicle ownership with you. Your best bet is to choose someone with a credit score above 660. Keep in mind that three out of four co-signers end up having to repay defaulted loans.
Make a larger down payment
Most subprime lenders ask for at least 10% down, though some will take as little as $1,000. Try to put down 20% if you can. Lenders see less risk with bigger down payments, which often leads to better interest rates. You’ll also borrow less money, which means lower monthly payments. This shows lenders you’re serious and gives you more room to negotiate.
Get prequalified with soft credit checks
Prequalification uses a “soft inquiry” that won’t hurt your credit score. You’ll see potential loan terms before you actually apply. Lenders will estimate what they might lend you after you share some basic financial details. Just remember that prequalification doesn’t guarantee financing—you’ll need to submit a formal application later. This tool helps you research your options early without affecting your credit score.
Compare at least 3 loan offers
Try to get preapproval from two or three lenders within 14 days. This counts as one inquiry and barely affects your credit score. Comparing offers helps you find the best rates and terms for your situation. Some lenders look beyond credit scores and consider things like education. This helps narrow down your choices before you submit formal applications.
Use an auto loan calculator to plan
Auto loan calculators show you how different factors change your monthly payment. Play with the loan term, down payment, and interest rate to see what happens to your payments. These tools also show how much interest you’ll pay over the entire loan. You might pay more each month with shorter loans, but you’ll save big on total interest. This planning helps you figure out what you can actually afford before you start shopping.
Conclusion
Bad credit definitely creates challenges when getting an auto loan, but borrowers can secure manageable financing terms with the right knowledge. A big interest rate gap exists between prime and subprime borrowers. This gap makes complete research and preparation crucial before signing any loan agreement. So, borrowers need to understand what counts as bad credit in 2025 to assess their options and set realistic expectations.
Different situations call for different lenders among the eight highlighted options. Some people prefer Carvana’s online car buying, while others need iLending’s extended repayment terms. Credit Acceptance Corp helps those without employment. Notwithstanding that, borrowers must stay alert to hidden industry practices. These include interest rate markups, prepayment penalties, and deceptive “no credit check” loans.
Your approval chances and loan terms improve with smart preparation. You can check credit reports for errors, make larger down payments when possible, and compare multiple offers through prequalification. These strategies work well together. On top of that, auto loan calculators help you grasp the true financing cost beyond monthly payments.
Bad credit won’t stop you from owning a car. Approximately 16.7% of all auto loans belong to subprime borrowers. This proves opportunities exist despite stricter lending criteria. Success comes from approaching the process with information rather than desperation. Careful planning and strategic application help borrowers secure transportation while rebuilding their credit through consistent payments.
Auto loans do more than just help you own a vehicle – they let you show financial responsibility. Each on-time payment helps rebuild your credit score and could qualify you for better rates on future loans. Bad credit is temporary. Most consumers can overcome it with discipline and knowledge while meeting their transportation needs.
Key Takeaways
Understanding bad credit auto loans can save you thousands and help you avoid predatory lending practices that target vulnerable borrowers.
• Bad credit costs significantly more: Deep subprime borrowers face rates up to 21.55% versus 5.18% for excellent credit—potentially $9,000 extra on a $30,000 loan over five years.
• Dealers often mark up rates by 1-5%: About 78% of dealer-arranged loans include hidden markups, adding $25.8 billion in unnecessary interest costs annually across all borrowers.
• Compare at least 3 lenders within 14 days: Multiple inquiries in this timeframe count as one credit check, helping you find better terms without damaging your score further.
• Larger down payments unlock better rates: Aim for 20% down when possible—it reduces lender risk and can qualify you for significantly lower interest rates.
• Prequalification protects your credit: Use soft credit checks to explore options without score impacts, then formally apply only to your top choices.
The auto loan market serves 16.7% subprime borrowers, proving financing exists despite credit challenges. Success requires preparation, comparison shopping, and awareness of industry practices designed to maximize lender profits at borrower expense.
FAQs
Q1. Is it possible to get an auto loan with bad credit in 2025? Yes, it’s possible to get an auto loan with bad credit in 2025. Many lenders specialize in subprime auto loans, and about 16.7% of all auto loans go to subprime borrowers. However, you can expect higher interest rates and may need to meet stricter requirements, such as a larger down payment or a co-signer.
Q2. What interest rates can I expect for a bad credit auto loan in 2025? Interest rates for bad credit auto loans in 2025 are significantly higher than those for prime borrowers. Deep subprime borrowers (credit scores below 500) may face rates around 15.81% for new cars and 21.58% for used vehicles, compared to rates below 7% for those with excellent credit.
Q3. How can I improve my chances of getting approved for an auto loan with bad credit? To improve your chances of approval, check and fix errors on your credit report, make a larger down payment (aim for 20% if possible), consider using a co-signer with good credit, and get prequalified with multiple lenders to compare offers. Also, use an auto loan calculator to determine what you can realistically afford.
Q4. Are there any hidden practices I should be aware of when getting a bad credit auto loan? Yes, be cautious of prepayment penalties, dealer interest rate markups, and “no credit check” loans that often come with extremely high interest rates. Some lenders may also push for longer loan terms, which can cost you more in the long run. Always read the fine print and understand all terms before signing.
Q5. Which lenders offer the best options for bad credit auto loans in 2025? Some of the best options for bad credit auto loans in 2025 include Carvana for online car buying, Capital One for prequalification, CarMax for used car selection, and Credit Acceptance Corp for unemployed borrowers. However, it’s important to compare multiple offers to find the best terms for your specific situation.