Is it Easier to Finance a New or Used Car With Bad Credit?

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Content Manager

Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

, Content Manager - May 21, 2020

You can usually count on used cars selling for less than new ones. This means if you have less than perfect credit, you’re more likely to get approved for a used vehicle.

Used Car Bad Credit Financing

When it comes to bad credit car financing, the process of buying a vehicle is different from a traditional auto loan. When you have good credit, you typically choose the car you’d like to purchase first, then head to the dealership. With good credit and enough income, your new and used vehicle choices are rather wide.

With a bad credit lender, or subprime lender, the process is different. First, you submit a credit application to a dealer with a special finance department. The dealership sends your credit application to a few subprime lenders, and looks for one that is willing to work with your credit situation. If you’re approved for financing, the lender sends the dealer a payment call. This is your maximum monthly payment, and then you choose a vehicle that fits within the lender’s program.

Now that you understand the process, you can see that your credit situation is going to determine how much you can finance. If you qualify for a brand new car on the dealership’s lot, you can take delivery of that vehicle if you choose. However, given that you’re a bad credit borrower, you may not get approved for enough to take delivery of a brand new car.

New Car vs. Used Car

You’re more likely to get financed for a used car than a new one if you’re a bad credit borrower, simply because you’re likely to get approved for a payment that fits better with used vehicle prices.

Financing a new car almost always costs more than a used one. New vehicles generally drop in value by 20% or more within the first year, and at least 10% in the next two years. Used cars have likely already seen this depreciation drop, so the amount you finance is less. Used vehicles also offer less of a chance of being in a negative equity position (where you owe more on the car than it’s worth).

Financing a less expensive used vehicle usually means a lower monthly payment, even though the interest rate is likely to be higher, and as a bad credit borrower, you don’t want to stretch yourself too thin. It could be risky to opt for the newest car with a high loan payment. Missing payments or having multiple late payments can lower your credit score quickly, and when you’re financing the most you possibly can, payments can be hard to keep up with. When you work with a subprime lender, the goal is typically to set you up for success and complete your loan with confidence.

Car Insurance Costs

Aside from the monthly payment, insuring a new vehicle is usually more expensive than a used car. Again, this has to do with how much you’re financing. You’re required to have full coverage auto insurance on a financed vehicle, so the additional cost can’t be avoided.

The cost of car insurance depends on where you live and the make and model of your vehicle, among other factors, but as a general rule, the more expensive the car, the more expensive your auto insurance payment is likely to be.

Finding a Bad Credit Lender

If you’re concerned about finding a reliable used vehicle, you’re not alone. Many borrowers can be hesitant to finance a used car due to the risks of future repairs. However, there are also certified pre-owned (CPO) vehicles that are worth looking at. A CPO car can be considered the happy middle child of used vehicle buying.

CPO cars are inspected by a manufacturer-certified mechanic before they’re sold, come with a warranty, and typically are just coming off-lease. A recent off-lease vehicle usually means it's only a few years old with low mileage. As a bonus, since it’s a relatively new car, it's likely to have more bells and whistles than a standard used vehicle.

As a bad credit borrower looking for a reliable used car, a CPO vehicle could be your answer. If you’re ready to get financing and you’re struggling with credit issues, let CarsDirect lead the way.

We're connected with dealers all over the country with special finance departments, and we match credit-challenged customers to these dealerships for free. To get started, simply fill out our secure auto loan request form.


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, Content Manager

Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

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