Buying a Car With Bad Credit: Rates, Risks and Steps That Lower Your Cost

This is general information, not financial or legal advice; rules vary by state.

A low credit score does not lock you out of the car market. In the second quarter of 2026, lenders originated $34.0 billion of auto loans to borrowers with scores below 620, out of $210.8 billion in total, according to New York Fed data. The challenge is not getting a loan; it is getting one you can afford to finish. This guide explains how lenders price bad-credit loans, what federal research shows about where the risks lie, and the steps the CFPB recommends before you sign.

Can You Get a Car Loan With Bad Credit?

Yes. The New York Fed’s Household Debt and Credit data show how wide the range of approved borrowers is. In Q2 2026, the median credit score on newly originated auto loans was 716, but the 25th percentile was 639 and the 10th percentile was 580 (New York Fed HHDC).

"Bad credit" has no single legal definition. The CFPB’s research on subprime auto loans uses a credit score of 620 or below, which it describes as one common definition of subprime.

How Much More Does a Bad-Credit Car Loan Cost?

No federal agency publishes auto loan rates by credit score; tier tables you see online come from private data firms. The clearest federal evidence is the CFPB’s 2021 Data Point on subprime auto loan outcomes, based on 2015 loan data. It found average interest rates on subprime loans of about 10% at banks, compared with 15% to 20% at finance companies and buy-here-pay-here dealerships (CFPB Data Point, September 2021).

Applied to a $20,000 loan over 60 months, those rates produce very different totals:

For context, the Federal Reserve’s G.19 release reports an average of 7.14% for 60-month new-car loans at commercial banks in Q2 2026 (Fed G.19). See our breakdown of average auto loan rates by credit score for more federal rate data, and run your own numbers in the auto loan calculator.

What Does Federal Research Say About Bad-Credit Auto Loan Risks?

The risk is not only a higher rate. CFPB research shows that borrowers with the weakest loan terms are the ones most likely to lose their cars:

• Delinquency by lender type: about 15% of subprime bank loans became at least 60 days delinquent within three years, versus 25% to 40% at finance companies and buy-here-pay-here dealers (CFPB).
• Default overall: in the same study, 15.9% of subprime loans ended in default roughly three years after origination, compared with 3% of other auto loans.
• Loan terms of borrowers who lost their cars: in the CFPB’s January 2025 auto finance report, non-servicemember borrowers whose vehicles were repossessed or surrendered within two years had average credit scores of 629, APRs of 12.9%, loan-to-value ratios of 117% and payment-to-income ratios of 10.9%. Borrowers who kept their cars averaged 726, 6.6%, 99% and 7.7% (CFPB report).

Repossession does not end the debt. The FTC explains that after a repossessed car is sold, you may owe the difference between the sale price and your loan balance, plus repossession costs, and in most states the lender can sue for that deficiency (FTC). That is why the loan’s size relative to the car’s value and your income matters as much as approval.

Where Should You Look for a Bad-Credit Car Loan?

The CFPB describes three main channels. Direct loans from banks and credit unions let you compare offers before you shop. Dealer-arranged financing is convenient, but the CFPB notes dealer rates are often higher because the rate offered can be the lender’s "buy rate" plus additional interest. Buy-here-pay-here dealers lend to borrowers with poor or no credit, but the CFPB says their rates tend to be higher (CFPB).

Bring a preapproval from a bank or credit union to the dealer. The CFPB says having a loan quote in hand can put you in a stronger bargaining position, and it gives you a benchmark if the dealer offers its own financing.

How Can You Improve Your Odds and Your Rate?

1. Check your credit reports first. The CFPB recommends reviewing your reports to spot and dispute errors before you shop. Free reports are available at AnnualCreditReport.com.
2. Get preapproved. Ask a bank or credit union for a maximum loan amount and rate before you visit dealers (CFPB).
3. Shop in a short window. Keep auto loan inquiries within 14 to 45 days so they count as one inquiry (CFPB).
4. Put more money down. A larger down payment lowers the amount financed and the loan-to-value ratio that CFPB data link to repossession risk.
5. Buy less car. A lower price reduces both the payment and the gap between what you owe and what the car is worth.
6. Choose the shortest term you can afford. Longer terms lower the payment but raise total interest.
7. Consider a co-signer carefully. The CFPB says a co-signer with good credit can lower your rate, but that person becomes legally responsible for the loan.
8. Decline add-ons you do not need. Extended warranties, GAP and other products are generally optional and add to the amount financed.

What Should You Watch for at the Dealership?

Focus on the total cost, not only the monthly payment. The CFPB advises factoring in interest, taxes, fees, add-ons, insurance and maintenance (CFPB). Before you sign, compare the APR, amount financed and total of payments on the Truth in Lending disclosure with your preapproval. If the payment looks affordable only because the term stretched to 72 or 84 months, the total interest will show the trade-off. Timing can also help on price; our guide to the best time to buy a car explains seasonal patterns.

• Ask whether the loan includes charges for any optional products.
• Do not leave with the car until the financing is final; get the terms in writing.
• Check that the trade-in value and down payment shown on the contract match what you agreed.
• If you fall behind later, the FTC advises contacting your lender right away; many will work out a delay or revised schedule in writing.

Should You Wait and Rebuild Credit First?

If your current car still runs, waiting even a few months while you pay down card balances, fix report errors and save a larger down payment can lower the rate you are offered. If you must buy now, buy a reliable, modestly priced car, keep the term short, and plan to refinance once your score improves. Making every payment on time is the most direct way to build the credit history that qualifies you for better terms on the next loan.

Morgan Reyes

Morgan Reyes is the founder and editor-in-chief of NextCarReview, which Morgan launched in August 2024. A 2022 graduate of Columbia University, Morgan is based in New York and writes and edits the site’s reviews, comparisons and buying guides. Morgan does not road-test vehicles. Every article is built from published primary data: EPA FuelEconomy.gov ratings, NHTSA crash ratings, recalls and owner complaints, IIHS results, and manufacturer specifications and pricing, with each figure cited and checked before publication. Contact: admin@nextcarreview.com

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