How to Get a Bad Credit Car Loan in 5 Steps

Get Car Financing
Even with poor credit.


Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.

, - September 23, 2019

If you have bad credit and find yourself needing a car loan, you may find it difficult to walk into any dealership and get approved for financing. Not every dealer works with lenders that specialize in bad credit auto financing; however, we can point you in the direction of one. Before that, though, you need to do some prep work and follow these steps to successfully apply for a bad credit car loan.

Step 1: Know Your Credit

The very first thing you need to do – if you haven’t already done so – is check your credit score and know what’s listed on your credit reports.

Try to get your FICO credit score, as this is the most commonly used one by lenders. See if your bank, credit union, or credit card company offers a free FICO check where you can see your score.

For your credit reports, you can get a complimentary copy every 12 months from each of the three major credit bureaus: Equifax, TransUnion, and Experian. You can request them by visiting Check to see that everything listed on your reports is accurate; if you see anything wrong, you should dispute it to the credit bureaus and have it removed immediately.

Step 2: Budget

Next, know what your budget is and how much money you have available for a vehicle payment. You can use our Car Loan Calculator for an estimated payment, but you should also calculate your debt to income (DTI) and payment to income (PTI) ratios.

Your DTI ratio focuses on your monthly expenses compared to your gross (pre-tax) monthly income. It’s easy to calculate: just add up all your monthly bills, including estimated vehicle and insurance payments, and divide the total by your pre-tax monthly income. Ideally, your DTI ratio should be no more than 45% to 50%, as this is the typical cutoff for subprime lenders.

Your PTI ratio tells you what percentage of your monthly income is used by your car payment. Most subprime lenders cap a vehicle payment at around 15% to 20% of your monthly income. To calculate your maximum monthly payment range, multiply your pre-tax monthly income by 0.15 (15%) and then by 0.20 (20%). This is the maximum range for a payment that can get you approved with a subprime lender, and the lower, the better.

Remember that your monthly payment changes depending on how long your loan is. You should try to balance an affordable monthly payment with a loan that's not too long.

Step 3: Research Cars

Once you have all this calculated and know where your credit stands, you can research cars. Look for an affordable vehicle that meets your everyday needs that falls within the guidelines. Subprime lenders are generally only willing to finance cars that are 10 years old or newer with fewer than 100,000 miles, though the specifics vary from lender to lender.

You can look up vehicles, and dig into their specifics through our new and used car sections. We also recommend that you read reviews from previous and current owners so you know exactly what you’re getting into. This can give you a feel for some common positives and drawbacks of particular models.

Step 4: Gather Documents

After that, you need to gather all the proper documentation needed to get a bad credit auto loan. You’re more than likely going to be working with a subprime lender that specializes in financing consumers with less than perfect credit.

Subprime lenders require documents such as proof of income, proof of residency, proof of a working phone, and a valid driver’s license or state I.D. to prove your identity.

You typically also need to make a down payment, so make sure you have enough trade-in equity or cash to meet at least the minimum requirement, which varies by lender.

Step 5: Find a Dealership to Work With

Finally, the last step is to find a local dealership to work with. Here at CarsDirect, we understand the frustration that can come from trying to find a dealer that has the lending resources to accommodate bad credit.

That’s why we want to take the stress out of finding a dealership and do the searching for you. We help credit-challenged car buyers get the financing they need by matching them to local special finance dealers. Getting started is a breeze, just fill out our free and easy auto loan request form today!

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.

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