If you have bad credit, getting approved for a car loan can feel like an uphill battle. While lenders may see you as a higher risk, the good news is approval is still possible—and with some preparation, you can greatly increase your chances of success.
In this guide, we’ll walk you through smart, practical steps on how to improve your chances of getting approved for a car loan with bad credit, so you can get behind the wheel without overpaying or getting stuck in a bad deal.
1. Know Where Your Credit Stands
Before applying, you need to know your credit score and report. Most lenders use your FICO score to assess risk. A score below 580 is typically considered “poor,” but knowing your number helps you understand what to expect.
What to do:
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Get your free credit report at AnnualCreditReport.com
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Use a free credit score app or check with your bank
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Review your report for any errors or outdated information that could be dragging your score down
2. Save for a Larger Down Payment
A bigger down payment reduces the amount you need to borrow—and shows lenders you’re serious. It also helps you avoid going “upside down” on your loan (owing more than the car is worth).
Tip:
Aim for 10% to 20% down, if possible. Even a few thousand dollars can significantly lower your monthly payments and loan interest.
3. Get Pre-Approved
Pre-approval gives you an idea of how much you can borrow and at what rate—without committing to a loan. This also strengthens your position at the dealership and helps you avoid high-pressure financing traps.
Where to get pre-approved:
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Credit unions (they often work with borrowers who have bad credit)
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Online lenders that specialize in subprime auto loans
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Community banks
4. Consider a Co-Signer
If someone with good credit (like a parent, spouse, or trusted friend) is willing to co-sign your loan, you could get a better interest rate and higher approval odds.
Important:
Both you and the co-signer are equally responsible for the loan. Missed payments can damage both credit scores.
5. Shop Around for the Best Rates
Don’t settle for the first offer. Lenders have different risk tolerance levels, and shopping around may uncover a better deal.
Tip:
Apply to multiple lenders within a 14-day window to avoid multiple credit score hits. This is called rate shopping and is treated as one inquiry by most scoring models.
6. Choose the Right Vehicle
High-risk borrowers should avoid expensive cars with high monthly payments. Instead, opt for a reliable, fuel-efficient used vehicle that holds value and requires fewer repairs.
Look for:
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Certified pre-owned cars
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Models known for reliability (e.g., Toyota, Honda, Hyundai)
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Vehicles under $15,000 or $20,000
7. Improve Your Debt-to-Income Ratio
Lenders want to see that you’re not overextended. If too much of your income goes toward debt, your approval chances drop.
What to do:
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Pay down credit cards before applying
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Avoid taking on new debts (loans, credit cards)
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Consider a side hustle to boost your income
8. Avoid Buy Here, Pay Here Lots—If You Can
Buy Here, Pay Here dealerships offer in-house financing to people with bad credit—but often at extremely high interest rates and with little reporting to credit bureaus.
What to do instead:
Exhaust all other financing options first, including online lenders and credit unions. Only use BHPH as a last resort.
9. Be Honest About Your Budget
One of the biggest mistakes borrowers make is overestimating what they can afford. Use a loan calculator to factor in:
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Monthly payment
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Insurance
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Fuel and maintenance
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Registration and taxes
Pro tip:
Keep your car payment under 10-15% of your monthly take-home pay.
10. Consider Rebuilding Your Credit First (If You Can Wait)
If your credit is in the low 500s or below, and your car situation isn’t urgent, you may want to wait a few months to improve your credit. Even small improvements can unlock better loan terms.
Quick ways to boost your score:
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Pay off any past-due accounts
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Make all payments on time
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Reduce credit card balances
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Use a credit-builder loan or secured credit card
