Playing it Credit Smart With a Used Car Loan

Get Car Financing
Even with poor credit.


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 - October 22, 2020

While the idea of buying a used car can make some people hesitant, there are benefits to seeking a used auto loan over a new one – especially for those with credit issues. We cover the benefits of choosing a less expensive vehicle when you have poor credit, and ways to set your car loan up for success to repair your credit score for the future.

Smart Credit Repair With a Used Car

When you have a poor credit score, focus on taking on an auto loan that’s comfortably affordable and can repair your credit. This means taking on a manageable term, having money to use as a down payment to lower your financed amount, and taking time to choose a reliable vehicle with a good safety rating.

Of course, most borrowers want all of these in a car. But with poor credit, you may feel like you have to settle for a clunker. Not all used vehicles are old and beat up, though, and you may be surprised by the selection you have when you're working with the right lenders. Typically, subprime lenders don’t finance cars over 10 years old, or with more than 100,000 miles on them.

Subprime lenders are signed up with special finance dealerships, which can be any dealer that chooses to cater to people in unique credit situations – so, they can have all kinds of used car options. These lenders look at more than just your credit score to judge your ability to take on an auto loan.

They also report their loans to the credit bureaus, meaning your on-time payments get reflected on your credit score. Making sure that your car loan is reported is key in repairing your credit – if the loan isn’t reported, your timely payments don’t do anything to boost your credit score.

These lenders examine the many moving parts of your financial situation because they want to be sure that you can comfortably afford the auto loan before they approve you. However, just because a lender is going to take a look at your overall financial state doesn’t mean that you shouldn't do your best to set yourself up for success.

Used Vehicle Sales and Your Credit

One thing’s for sure, used vehicles are typically more affordable than brand-new ones. There’s a good reason for this, of course, being that used cars have been driven, have mileage, and likely have some wear and tear from use. But used vehicles are lasting longer than ever before, and the savings could have major benefits in the long run.

While getting behind a car that’s never been owned with all the latest bells and whistles is certainly tempting, if you have less than perfect credit, it’s generally a better idea to repair your credit with something less expensive. Not to mention, the higher your loan amount, the more risk you take on. When you’re struggling with credit, taking on a low-risk auto loan should be a priority.

The Risks of Financing a New Car

The fact is new vehicles lose value very quickly. For borrowers with credit issues, taking out a loan on a car that’s likely to lose around 20% of its value within a year or two of ownership probably isn’t the best idea. All vehicles suffer from deprecation, but new cars get hit the hardest.

A quick drop in value over a short period of time can cause negative equity, and it’s common for new vehicle borrowers. Negative equity is when you owe more on the car than it’s worth. If you needed to sell a vehicle that has a loan amount higher than its value, you're left to pay off the balance out of pocket, or are stuck rolling the amount over onto your next auto loan.

High negative equity and high loan amounts spell trouble for any borrower, but it’s really risky for those who already have lower credit scores. When you’re looking for your next car loan, repairing your credit with an auto loan is a great place to start. You may already know that one of the best ways to improve your credit score is by taking on new credit – so begin with credit that can benefit you in the long run!

Preparing for a Bad Credit Auto Loan

One of the best things you can do for a bad credit car loan is saving for a down payment. Subprime lenders usually require down payments from their borrowers, typically at least $1,000 or 10% of the vehicle’s selling price.

However, the more you can put down, the more manageable your auto loan. Bad credit borrowers are more likely to qualify for higher interest rates, but by having a large down payment, you can mitigate the interest charges that stack up over time. Car loans are simple interest loans, which means you’re charged interest daily on your loan balance. The less you finance, the less you pay in interest – simple!

Down payments also improve your chances of landing an auto loan approval, since lenders like to see borrowers that have skin in the game. Research has shown that borrowers who invest in their car loans with their own money up front have a higher chance of completing the auto loan successfully.

Another way to prepare for a car loan if your credit is worse for wear is by asking someone to cosign with you. Cosigners “lend” their good credit score to you, and may be able to help you qualify for a lower interest rate.

Another big step in preparing for an auto loan is finding a dealership that has the resources you need, and you can start right here at CarsDirect. We’ve cultivated a nationwide network of dealers that are signed up with subprime lenders.

Get connected to a dealership in your local area that has bad credit lending options by filling out our free car loan request form. Finding the right lender is half the battle when you need an auto loan with less than perfect credit!


$1 Credit Report

Get your credit score now!
Get a copy of your most recent credit report too.

Get Your Report & Score

Auto Refinance

Refinance your car or truck now. Get a better interest rate and lower payment.

Refinance Your Car

Auto Services

Compare service professionals near you. Get multiple price estimates upfront. Schedule your service.Save upwards of 25% with Openbay+

Search services or describe problem

Need a Car Loan?

It only takes a minute.

, 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. 

Search New Cars by Loan Payment »

View estimated loan payments based on local rebates and financing offers.

Loan approval is not guaranteed and is subject to credit application and approval of the lender. Individual loan terms may vary. Use of this website constitutes acceptance of's Terms of Use, Disclaimer, Privacy Policy, and Cookie Policy.

Privacy Terms of Use Your Privacy Choices Disclaimer Cookie Policy Manage Preferences
COPYRIGHT 1999-2024 MH Sub I, LLC dba