Bad Credit Car Loan Trends: Buying a Used Car Is Common

Most People With Bad Credit Buy Used Cars

Roughly 92% of people with deep subprime ("bad") credit scores opt to buy a used car over a new one, according to Experian data. Even though interest rates tend to be lower for new car loans, used vehicles are often much less expensive, resulting in lower monthly payments.

Share of Used Vehicle Financing by Credit Score

Current Auto Loan Interest Rates by Credit Score

If you don't urgently need to buy a vehicle, it can be a good idea to work on improving your credit score before applying for an auto loan.

Depending on where your score sits right now, even a slight improvement could help you qualify for a lower interest rate than what you'd get with bad credit. Here's a look at the average car loan interest rates by credit score:

Source: Experian data as of Q4 2024; VantageScore 4.0 used

How to Get an Auto Loan With Bad Credit

While bad credit can make it more difficult to get financing for a vehicle, it's not impossible. If you're having trouble finding a willing lender, though, here are some steps you can take to improve your odds:

• Buy a cheaper car. The less you borrow, the less of a risk you pose to lenders. This can give you a better chance of securing a loan and potentially qualifying for better loan terms.
• Make a larger down payment. As with buying a cheaper car, putting more money down on your purchase can minimize how much you need to borrow. What's more, a larger down payment can indicate to the lender that you're serious about keeping the car and keeping up with loan payments.
• Get a cosigner. If you have a family member or friend with great credit, consider asking them to cosign your loan application. A cosigner agrees to make payments on the loan if you can't, so the lender will review both your credit histories to determine eligibility and loan terms. In other words, a cosigner can help you not only get approved but also score a lower interest rate.
• Shop around to compare offers. Each lender has its own approach to evaluating borrowers, so it's always a good idea to shop around and compare interest rates and other terms from several lenders. It's even more important when you have bad credit, so you can also avoid high-cost loans like buy here, pay here financing.

How to Improve Your Credit Score

Before you apply for a car loan, consider working to increase your credit score to improve your options. Here are some steps you can take:

• Check your credit report. Check your Experian credit report to get an idea of which factors are influencing your credit score. This resource can tell you which areas need some work.
• Pay on time. Your payment history is the most influential factor in your credit scores, so it's crucial that you always pay your bills on time. Depending on your situation, this may also include getting caught up on missed payments or paying off collection accounts.
• Pay down credit cards. Your credit utilization rate—the portion of available revolving credit, such as credit cards, you're using at a given time—is another major factor in your credit score. Paying down your credit card balances can potentially increase your credit score relatively quickly.
• Become an authorized user. Consider asking a loved one with good credit to add you as an authorized user on one of their credit cards. When you do this, the full history of the account will show up on your credit reports, potentially helping bolster your credit score.
• Minimize unnecessary credit applications. Each time you apply for credit, the lender may use a hard inquiry to evaluate your credit history. While an individual inquiry won't hurt your credit score much, multiple inquiries in a short period may have a compounding effect.
• Get credit for other bills. Experian Boost^®ø is a free feature that allows you to add alternative bill payments, such as rent, utilities, phone, insurance and even some streaming subscriptions, to your Experian credit file.

Monitor Your Credit Score Progress With Experian

As you work to improve your credit, you can monitor your progress with free access to your FICO^® Score^☉. You can also enjoy real-time alerts when changes are made to your Experian credit report, making it easier to stay on top of new developments.

While improving credit can take time and, in some cases, a lot of effort, the expanded access to affordable credit can be well worth it.