The Short Answer
In a nutshell, if you've got bad credit, you'll very likely be able to get a car loan; it's just going to have higher interest. There are a few different reasons for this, primarily, the lending agencies are covering their losses. Most people will be able to pay the money back, some won't, and secondary measures will become necessary to maintain profitable viability for lenders. What they've found is that they can approve people with bad credit for car loans, provided they charge them higher levels of interest. Now that's all pretty straightforward, but there are some deeper details to the situation worth considering. We'll briefly go over them:
- Bad Credit Through No Credit
- Sub-Par Credit Owing To Excessive Debt
- Normalized Bad Credit Issues: Missed Payments, Defaulted Loans
- Getting Backhanded When You're Acting As Co-Signer
Bad Credit Through No Credit
Say you're a teenager who just turned eighteen and you've never done anything positive or negative with your credit. Well, you've got no score; which means you're going to get an interest rate that is similar to someone with bad credit. There's a "funky" wrinkle here. If you get good credit, then never make any purchases which increase your credit score for seven years, your credit score will "reset" and it's like you've never had any credit at all. So just because you had good credit four or five years ago, and haven't made a purchase, doesn't mean you have good credit today.
Sub-Par Credit Owing To Excessive Debt
Maybe you're paying everything off on time, but you end up making a lot of purchases which require you pay for them regularly. This could reduce your credit score, as there becomes an increasing likelihood that some bump in the road knocks you off your payment schedule.
Normalized Bad Credit Issues: Missed Payments, Defaulted Loans
When a loan goes into default or you miss a payment, that's going to hurt your credit score. Accordingly, if you're taking out an auto loan, you won't be able to get options that are as good as if you hadn't missed a few payments or experienced default. Pro-tip: if you're about to default on a loan, refinance it first to avoid the credit hit.
Getting Backhanded When You're Acting As Co-Signer
Here's another pro-tip: unless you've got the assets to cover your "friend" before they get impacted in terms of personal credit, don't be a co-signer. If you're a co-signer on a loan and they get in trouble, your credit is similarly impacted.
The thing is, you may not realize such a thing has happened until you are in the dealership signing the paperwork on a car. Don't cosign unless you can really handle it.
How Interest On Auto Loans Break Down Pertaining To Credit
With good credit, that is: 781-850, you can expect 4.23% to 4.77% in terms of loan interest. Between 661 and 780, expect interest rates to range between 5.17% and 6.54%. At the 601 to 660 level, interest rates will be 8.12% to 11.38%. When you're at 501-600, interest rates will be 12.20% to 17.36%. If you're buying a used car, regardless of your credit, interest on loans tends to be higher because the cost of the vehicle is lower, and those giving the loan need to make a profit.
Bad Credit Auto Loans Exist, They Just Have Higher Interest
The truth is, you can almost always get a car loan regardless of your credit; you're just going to see a much higher interest rate if you either have poor credit, or buy used. So know your credit score, and what interest rates you can expect on average. This will help you determine the sort of deal your getting on an auto loan.