Buying a Car With Bad Credit
Bad credit makes borrowing harder in general, but it doesn't rule out getting approved for a car loan the way it might for other kinds of credit. Understanding why, and what strengthens your application, can help you get a better outcome than you might expect.
Why Secured Loan Approval Is More Possible
Because an auto loan is secured by the vehicle, the lender has a built-in safety net: if you stop paying, they can repossess and resell the car. That safety net is exactly why lenders are often willing to approve auto loans for borrowers with credit challenges that would get them turned down elsewhere, the lender isn't relying purely on your credit history to protect their investment.
A Down Payment as a Risk Offset
Putting money down reduces how much the lender has to finance, which lowers their risk and can improve your approval odds, sometimes significantly. A larger down payment can also help you avoid being "upside down" on the loan (owing more than the car is worth) later on, which matters if you ever want to sell, trade in, or refinance.
A Cosigner as a Risk Offset
A cosigner with stronger credit and income can also improve your approval odds and potentially your interest rate, since the lender now has two people legally responsible for the loan instead of one.
It's worth being upfront about the cosigner's own risk: if you miss payments, it affects their credit too, and they're just as legally responsible for the debt as you are. A cosigner should understand exactly what they're agreeing to before signing.
Looking to Buy Without a Cosigner?
It's entirely possible to get approved without one, especially with a reasonable down payment and a lender that specializes in credit-challenged borrowers. Approval without a cosigner may come with a higher interest rate, so it's worth comparing what your rate would look like both ways before deciding.
What Comes Next
If you buy with a cosigner or accept a higher interest rate now, it doesn't have to be permanent. Once your credit improves and you've built a track record of on-time payments, refinancing can remove a cosigner and potentially lower your rate. See our Refinance & Remove a Cosigner guide for how that process works.
Frequently Asked Questions
Clear answers to the financial questions people ask most before making important money decisions.
Can I get approved for an auto loan while currently enrolled in a debt program?⌄
You can, though expect fewer options and a higher rate than you'd get with strong credit. While you're actively settling debts, your accounts are usually showing as delinquent or settled, and your score is likely near its lowest point — so lenders see more risk.
A few things work in your favor here. Credit unions tend to look at your full financial picture rather than leaning on your score alone, so they're often worth trying first. A bigger down payment, in the 20-30% range, offsets some of that lender risk and can open up better terms. Keeping the loan itself small — a modest used car rather than a stretch purchase — also helps, both for approval odds and for your monthly budget while you're still working through settlement. If you can show documentation of the progress you've made resolving your debts, some lenders will factor that in favorably even before your score has caught up.
One thing specific to debt settlement: check with your settlement company before you apply. Many programs require notification before you take on new debt, since it can affect the funds set aside for negotiating your existing accounts.
Is it better to use a cosigner or wait until my credit improves to buy a car?⌄
It comes down to how urgent the need is and what you're willing to trade off.
A cosigner with solid credit can get you approved faster and often at a meaningfully better rate, since the lender is really evaluating both of you together, not just your own file. That can matter a lot if you need reliable transportation now. The tradeoff is real, though: your cosigner becomes legally responsible for the loan if you can't pay, and even your on-time payments show up on their credit report and affect their debt-to-income ratio for other things they might apply for.
Waiting and improving your own credit first avoids putting anyone else's credit or finances at risk. If your situation allows for some flexibility — even 60 to 90 days of focused work paying down balances or fixing report errors — you may see enough of a score improvement to qualify on your own, sometimes at a rate close to what a cosigner would have gotten you.
If you do go the cosigner route now, refinancing once your credit and payment history are stronger is a common next step.
How much higher will my interest rate be if I finance a car with fair or poor credit?⌄
The difference is bigger than most people expect. Recent industry data puts new-car rates around 4.5% for excellent credit versus roughly 16% for poor credit — and the gap on used cars is even wider, spanning from around 6% up to nearly 22%.
To put that in real dollars: each percentage point of APR adds several hundred dollars in interest on a typical car loan over five years. Stack several points on top of each other between credit tiers, and you're looking at a difference of thousands of dollars for the same car. That's the real cost of financing before your credit is in shape, not just an abstract number.
Existing Debt Standing in Your Way?
If other debt is affecting your approval odds or the rate you're offered, it may be worth understanding your options first.
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