How To Buy a Car with Bad Credit: Tips and Financing Options

Jerry Baker
March 22 2023

If you’re shopping for a new car but don’t have perfect credit, you may have heard the term "subprime auto loan.” These loans are designed for individuals with poor credit or low income and extend financial assistance to people who might not qualify for conventional auto loans. 


Subprime auto loans come with important benefits and drawbacks that you should consider before you buy your new car.

Subprime Credit Scores

According to the FICO credit score range, prime auto loans are offered to borrowers with a prime credit score, typically between 660 and 719. 


Subprime auto loans, on the other hand, cater to borrowers who fall under the subprime credit category, typically with scores ranging between 580 and 619

Pros of Subprime Auto Loans

Despite their reputation, subprime car loans come with certain advantages and can be a beacon of hope for people who need to buy a car with bad credit


Credit Accessibility

The most significant advantage of subprime auto loans is that they offer a lifeline to those who might otherwise struggle to secure auto financing due to their credit history. If you have poor credit, a subprime auto loan can help you purchase a vehicle that you may need for commuting to work, running errands, or completing other daily activities. 


Improved Credit

If managed properly, a subprime auto loan can serve as a stepping stone toward credit improvement. By making consistent, timely payments, borrowers can gradually rebuild their credit score, eventually qualifying for loans with better terms.


No Credit History Required

It’s difficult for young adults or immigrants to qualify for auto loans because they have no credit history. While these individuals are not necessarily considered high-risk, traditional lenders often reject their applications because they don’t have a history that proves they will pay their bills on time. Subprime auto loans provide these demographics a chance to establish their creditworthiness.

Cons of Subprime Auto Loans

Subprime car loans typically come with high interest rates and fees. Consider the disadvantages of these loans. 


Higher Interest Rates

The most significant drawback of subprime auto loans is their above-average interest rates. These rates are typically substantially above those offered to prime borrowers. For example, while the average APR for a prime borrower can range between 5.82% and 7.83%, subprime borrowers might face rates between 10.79% and 17.46% or even above 21% in extreme cases.


Higher Monthly Payments

High interest rates translate into high monthly payments. On average, subprime borrowers pay between $35 and $65 more per month than prime borrowers. Over time, this could lead to a significant financial burden, causing the borrower to pay thousands more in interest over the life of the loan.


Risk of Repossession

With high-interest rates and monthly payments, there's an elevated risk of falling behind on payments. If this happens, the lender has the right to repossess the borrower's car, causing further financial strain and damage to the borrower's credit score.


Longer Loan Terms

To make monthly payments more manageable, subprime auto loans often come with longer repayment terms. While this might seem attractive, it means paying more in interest over time, making the car more expensive.


Additional Fees

Subprime auto loans may also come with additional fees, such as origination fees or prepayment penalties. These costs can add up over time, increasing the total cost of the loan.


Predatory Lending Practices

Unfortunately, the subprime lending market is known for predatory practices, such as hidden fees and penalties for early repayment. Borrowers must be cautious and ensure they fully understand the loan terms.

Finding a Subprime Auto Lender

Subprime auto loans can be a life-changer if you have a low credit score but need to buy a car. However, you should not take the decision to get a subprime loan lightly. If you’re not sure you can afford one and then default on the loan, your credit could end up worse than when you started. 

When you’re ready to buy a car, is here to guide you. We can match you with an understanding dealer who has experience with subprime auto loans and can guide you through the process with kindness and respect. Get started with our fast application today.

Jerry Baker