How to Get an Auto Loan with Bad Credit in the U.S.

Interested in how you’ll feel behind the wheel of your new car but worried about your credit score? Anxious about just how tough the terms might be? Well, we evaluate the process of getting an auto loan with a bad credit focusing on the research required and the background information that will give you an upper hand when approaching the negotiation table. 

Understanding Auto Loans in the USA

Automobile loans can be confusing especially when you are faced with bad credit scores. Usually, shoppers are faced with figuring out which one is the best deal on their financing. Understanding all the moving parts including the interest rates and the overall terms of the auto mobile loan is essential for getting the best deal even with a bad credit score. 

Automobile financing is understood to be a close-ended credit provided to service the purchasing of a new or used automobile. Products offered during automobile financing include either partial of full coverage for the cost of purchase. Financing usually comes from banks, original equipment manufacturing (OEM) companies, online lenders, and credit unions. 

Some of the terms you need to understand to help your automobile loan take shape include the: 

Annual Percentage Rate 

This is simply the interest rate that will be charged on the original amount borrowed- the principal. Note that most lenders add any closing costs to the principal further influencing just how much you will be repaying at the end of each month. 


This is the duration in which the loan will be serviced. Industry trends indicate that auto loan terms are getting longer and longer. This effectively means that the monthly repayments are getting lower and interests higher. Have the lender take you through the duration you are expected to service the loan. 

Tips for getting an auto loan with bad credit in the USA 

Know your credit score 

For lenders to assess your personal credit risk, they rely on your personal credit score. This information is contained in a credit report that details your recent financial history including previous loan payments, credit applications, and bankruptcies. 

To take charge of your bad credit, it is advisable to access your overall credit profile. In the United States, this information is available by the top credit reporting bureaus: TransUnion, Experian, and Equifax and scaled based on the FICO methodology. Additionally, you can utilize tools like myBankrate to access your profile all for free.

It goes without saying that you are required to do more than just check your credit score. Take action. Make intentional moves to repair your credit score including making overdue payments. If necessary, seek expert advice all aimed at getting you in a favorable position with auto loan lenders. 

Research, research, research 

Before you begin to shop for an auto loan or make a final decision on which auto loan fits your needs best, embark on extensive research. 

Your first task before approaching a lender is understanding what you can afford. Use online tools like the auto finance calculators to estimate what you can easily pay for. The calculator will provide you with a bigger picture including the loan term, annual percentage rates, and the down payment needed. Input these estimates into an affordability calculator to further breakdown just how much you can spend servicing you automobile loan. 

Next is choosing a vehicle. As in most cases, you may want to go with an older model than a newer one with high consumption. Even with budget considerations, make sure you take into account your personal needs and preferences. 

Once you have a vehicle in mind, take a look at your insurance options. This will be part of your overall monthly expense so it’s critical to get a gauge on how much you’ll have to pay for insurance on top of your car loan.

Lastly, shop around. Approach banks, credit unions, finance companies, and dealerships just to ensure you get the very best deal. Go online and look through direct-to-consumers lenders.  

Down payment plus trade in 

When faced with a bad credit profile, choosing to have a hefty down payment and trading in the older automobile may significantly improve your position. By going for either option, you are assured that the principal amount is lowered. Additionally, trading in the old car shows the lender your commitment to the current deal. 

Get a cosigner 

Nothing improves your position during the negotiations for an auto loan than having a cosigner. The consigner, hopefully one with a better credit profile, serves to improve the lender’s confidence. By cosigning the auto loan, they agree to repay the loan on your behalf in the case that you are incapable of servicing the loan or default. 

Find a dealership 

The right dealership will mean a swift process. It is important to remember that there is no pressure even with the poor credit profile. Go for reputable firms that are certified. Be upfront with the management and present all documentation. Most importantly, commit to fulfilling your end of your deal. 

A bad credit score does not have to mean the end of the road for auto mobile shoppers. With some research, a willingness to correct your credit score and expert advice, you can be on your way to partial or full financing of your automobile. 

Pros and Cons of Refinancing Your Auto Loan

Refinancing your auto loan is a very big decision to make, almost as big as buying your new car. Refinancing is basically acquiring a new secured loan to pay off the old one. This usually happens when you seek more favorable terms on your loan contract or you need cash fast.  Ideally, the new loan terms will be improved.  But sometimes refinancing is not always the right decision, as there are disadvantages related to it, too.

Refinancing your auto loan can be appealing and tempting at times.  But it is very important to take a close look to make sure you get the benefits you wanted from it. Like other decision-making situations, refinancing has both advantages and disadvantages. That is based, of course, on your situation. Having an educated understanding about these pros and cons will keep you on the right track to make a good financial decision.

To help you decide whether to refinance your car loan, here are some pros and cons to consider:

Pros of Refinancing Your Auto Loan

Refinancing can lower your interest rate

Through refinancing, there is a possibility that you get a lower interest rate compared to your existing loan. This is one of the many reasons why borrowers opt to refinance. If you have a good credit reputation, you might want to try checking to refinance your vehicle after a couple of years. If your credit score is good, you can get a lower interest rate through refinancing. With lower finance charges, you will be able to save money over the course of loan period or even able to pay off your loan faster. However, there is a limit on this. Keep in mind multiple inquiries on your credit rating can negatively affect your credit standing.

Refinancing extends payment period

It allows the borrower to reconstruct the term of the new loan, including the payment period. If the borrower has good credit, extending the loan period can be attainable. For instance, if the loan term of your existing loan is two more years, it may be possible to extend the term to four or five years through refinancing.

Refinancing increases cash flow

If the balance of your existing loan is less than what your car is worth, you may able to increase your cash flow through cash-out refinancing.  For instance, if your vehicle is currently valued at $10,000, but you only owe $8,000; your vehicle has an equity value of $2,000. This type of refinancing gives you the equity remaining to use as necessary.

Cons of Refinancing Your Auto Loan

Refinancing makes you pay more interest over the period of the loan.

When you refinance, you should compute first whether you are actually saving money. Although it is true that when you refinance you often get a lower interest rate, you generally also pay more interest since the loan period is extended. In other words, you pay more cash over the life of your loan. Getting a lower monthly interest rate might be very tempting, but if you really want to pay less overall and save money it is important that you do the math first before deciding.

Refinancing sometimes makes you pay a higher interest rate.

This advantage is for a cash-out type of refinancing. This type of refinancing allows borrowers to pull out cash fast but often come with a financial penalty (interest rate or fees).  Getting cash is the most common reason for refinancing. When you conduct a cash-out refinancing, you should keep in mind that most creditors charge high interest especially on older cars. But, this is a good method to get cash out of your equity if you need immediate funds.

Refinancing sometimes makes you pay exit, transfer, and upfront fees.

Since you are terminating your existing loan and getting a new one, you are expected to pay additional fees and charges.  Most of the loans that came from refinancing do not have a pre-termination waiver. Beware if your new loan comes with a prepayment charge, because it will mean you are not allowed to pay off your credit early. With that, you have no choice but to pay the loan over the entire length of the loan. Be careful if your new creditor charges an extra fee, including the application charges, because these can add up and offset benefits that you’d get from refinancing.


Before deciding whether to refinance or not, you must do your research first and take all your options into consideration. Start by evaluating what interest rates are available. Then consider your budget and the length of your current versus proposed loan. To maximize the benefit of refinancing, try to find a loan that has the lowest interest rate but payable in the shortest period of time.