Yes, It’s Possible to Get a Car Loan With Bad Credit

By Angela Monroe - August 13, 2019

It’s not easy to get a car loan with bad credit, but it is still possible. Several alternatives can also help you get car financing fast even if you don’t have time to improve your credit score.

Bad Credit Car Loan

You can easily get a car loan with bad credit from alternative lenders. These small business lending companies provide many financing products for borrowers like you who do not qualify for bank loans. 

Bad Credit Car Loan is a type of car financing that’s similar to other auto loans except that its interest and repayment rate is higher because of the increased risk to the lender. Also called Second-Chance Car Loan, it allows you to get the vehicle you need while also helping you fix your bad credit score with responsible repayments.

Most bad credit car loans also require more security, like collateral, guarantor and large down payment.

  • Collateral – This will be the car that you’re going to purchase with the money you loan. 
  • Guarantor – This is a person who guarantees the loan repayment on your behalf. He or she can help you increase your borrowing potential but will become liable for the loan if you default on it.
  • Down Payment – The recommended down payment is usually at least 20% of the car’s sale price and never going below 10%. The higher your down payment, the less your loan is likely to cost because of better interest rate and less monthly payment. 

Car Loan Co-Signer 

Improve your chances of a car loan approval by getting a co-signer with good credit. It also helps you negotiate for better loan terms.

Your co-signer signs the loan contract along with you and pledges to pay back the loan if you fail to do so. This person typically has a high credit score, solid credit history and a stable source of income. Their credit profile provides more assurance to your lender that the loan will be repaid even if you can’t. With them, you might get a better interest rate.

By affixing their signature on the loan contract along with yours, your co-signer also shares the same responsibility for the loan. They will be liable for its repayment even if they have never driven your car. The repayment history on the loan, good or bad, will also affect their credit score.  

Co-Signer Vs Guarantor

A co-signer acts as a guarantor but they differ in terms of liability. Unlike the guarantor who is only liable for the debt once the lender exhausts all other means of collection from you, the co-signer is bound to the contract and is liable without the lender needing to take any specific action to request payment. 

Car Loan From Credit Unions

If you are a member of a credit union, you might have an easier time getting a car loan. 

A credit union is a financial cooperative that is owned and controlled by its members rather than by shareholders. It operates as a non-profit organization that aims to help its members get credit at competitive rates, as well as offers checking and savings accounts with high interest rates.

A credit union typically offers loans with good terms and low interest rates for its members. You also have a higher chance of getting approved for financing even with bad credit. Generally, however, the membership is restricted to a certain area, employer, or any particular group you are affiliated with.

Check for a credit union in your area, employment, school, or place of worship. Make sure that the credit union you join has the features that are most important to you, like vehicle financing at low interest rate or no checking account minimums. Don’t forget to get a pre-approval before going to a dealership. This lets you know exactly what you can afford.

Buy Here, Pay Here Dealership

Buy Here, Pay Here, often abbreviated as BHPH, is an in-house financing offered by auto dealerships. This means that you get to choose the car you want to buy at the dealer, as well as finance it there. Since the dealer benefits from both the car sale and the car loan, they are often more lenient in granting you the funds even if you have poor credit.

While BHPH can help you get a car loan fast even if you have bad credit, it also has many pitfalls, including:

  • Higher interest rates than accredited lenders, plus a slew of hidden fees 
  • Limited car selection – The dealer usually determines your eligibility first before showing you the cars you qualify for instead of you picking a car and then talking about your financing options.
  • Larger down payment to mitigate the risk of default and to have more car choices
  • Less leeway if you’re struggling to keep up on payments, which means a higher chance of car repossession 
  • Most dealers than offer BHPH car financing do not report to the credit bureaus. Even if you pay your loan obligations on time, it won’t have any effect on your credit score. 

Because of the many disadvantages of BHPH car financing, credit and financing experts often discouraged it.

If You Don’t Need a New Car Right Away…

It is best to improve your credit score first before getting a car loan. With an improved credit score, you will have a higher chance of getting the lender’s approval. You can also negotiate for better terms and low interest rates. There are steps that you can take to improve your credit score.

1. Check your credit score and improve it if you can.

Request a free copy of your credit report from the national credit reporting bureaus (CRBs). You are entitled to a yearly free copy of this document. It is best to have all credit reports from the three national CRBs (Experian, Equifax and illion). Each credit report may differ from one CRB to another since some lenders do not submit to all agencies.

  1. Dispute any false entries.

    Go through all the information in your credit reports and look for typos, false information and fraudulent claims. Make a dispute letter right away and send it to the concerned CRB if you find one that greatly impacts your credit score, like incorrect payment history and lines of credit that have been taken out without your knowledge. Attach any supporting documents that you have. The CRB will investigate your dispute within 30 days before getting back to you with an update. After a successful dispute resolution, the CRB will delete the erroneous information and your credit score will dramatically improve.
  2. Catch up on any late payments and pay your bills on time.

    Payment history makes up the largest portion of your credit score. If you have other active debts with missed payments, catch up with the repayments and make your monthly payments on-time moving forward. If you have an account in collection, pay it off even for less than the full amount if you can’t afford to pay the entire balance. This will significantly improve your score.
  3. Reduce your credit card usage.

    If you use a credit card, limit your usage to 30% of your total credit card limit. This will improve your credit utilisation ratio, which makes up 30% of your FICO credit score. A low credit utilisation ratio indicates that you’re managing your credit responsibilities well because you’re far from overspending while a high credit utilisation ratio implies that you’re having trouble managing your finances.
  4. Add utility and phone bills to your credit file.

    If you pay your utility and phone bills on time, you can add them on your credit report to boost your credit score. Tools, like Experian Boost, makes this possible

2. Shop for car loan requirements and rates.

Different lenders have different criteria for car loans. Always do a car loan shopping to compare requirements, rates and terms. One lender may consider your credit score of, say 669, as bad while another lender believes it is good enough to grant you the loan. 

Your credit score also affects your loan’s interest rate and terms. This means that if you’re approved for a car loan with a low credit score, you’ll likely pay a high interest rate for it.

2-Week Car Loan Shopping

Check different car loan lenders and get pre-approval to have a good idea of how much you can negotiate. If lenders find out that you’ve been shopping for car financing, they’ll also likely offer you a better rate to convince you to deal with them.

Do your car loan shopping for a maximum of two weeks, however. Lenders usually check your credit profile when you get a loan pre-approval. The CRB records every access to your credit profile as a “hard inquiry”. This negatively affects your score as it implies that you’re applying for many loans. However, all loan inquiries made within two weeks are only counted as one.

3. Know how much you can afford.

Use a car loan calculator to have a good idea of how much you can afford on a loan. By having an idea of how your monthly loan payment, you can better choose a car in your price range. Also, research the current car loan terms and average interest rate so that you can be at an advantage on the negotiation table.  


Don’t let bad credit stops you from owning a car. At Loans For People With Bad Credit, we help all Australians get the vehicle financing they need. Call 1300 769 384 or fill out our Bad Credit Loan Pre-Approval form to get started.


See also:

5 Easy Steps to Get Out of a Bad Car Loan

What Interest Rates are Typical for Bad Credit Car Loans?

“Can I Get a Car Loan When I Am Unemployed?”

Angela Monroe
Angela Monroe is the Community Manager at The Positive Group, specialising in giving people the information that they need when they need it, and putting you on the path to a fair financial future. She has 8 years of experience in helping Australians find the right finance solutions, and regularly contributes articles to empower Australians with the knowledge they need to become financially healthy.


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