Best Used Car Loans with Bad Credit

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The interest rate and terms you get with a used car loan vary greatly from one lender to the next. To get the best possible terms, it’s crucial to shop around.

Banks, credit unions, and online lenders are required by law to provide potential borrowers with the annual percentage rates (APRs) on their auto loans. This number represents the percentage of the loan that the borrower pays for fees and interest during each year of the loan.

Knowing the APR of your loan options helps compare loans with different terms and payments to find out which one works best for your financial situation. Also make sure you can afford the monthly payments, rule of thumb is to pay off the loan as fast as possible but still with margin for other expenses.

Here’s our pick for the best used car loans for bad credit.

Best Used Car Loans with Bad Credit

Amounts
Up to $40,000
APR
Starting at 5.99%
Bad credit
Allowed
Loan Terms
2 months to 5 years
Amounts
Up to $35,000
APR
Starting at 5.99%
Bad credit
Allowed
Loan Terms
3 months to 6 years
Amounts
Up to $35,000
APR
Starting at 6.90%
Bad credit
Allowed
Loan Terms
2 months to 7 years
Use car as collateral
Possible
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How cheap car loans save you money

If you finance a $25,000 vehicle at a 4.2% interest rate for 60 months, you’ll pay $463 per month and over the life of the loan, you’ll pay $2,767 for the interest on the loan. Of course, you’ll also pay the $25,000 price of the car.

Finance the same car at 6.21% and your payments jump to $486 per month. You’ll pay a total of $4,146 for just the interest on this loan.

If you need a used auto loan for bad credit, you could end up paying an interest rate around 19.81%. At that rate, your monthly payment on a $25,000 loan for 60 months would be $660. Over the life of the loan, you would pay $14,582 for the interest on the loan, on top of the $25,000 worth of payments for the car itself.

Where to find the best used car loans when buying from a private party

In the table above, you’ll find loan officers that can help arrange both regular unsecured and secured auto loans.

They may even have programs to help you access private party auto loans for bad credit. When you find a great deal on a used car that isn’t at a dealership but is being sold by the owner, you can get the same type of financing offered by used car dealerships.

Private seller auto loans work the same way as auto loans from a dealership, too. The lender will need the vehicle’s VIN number, make, model, year, and mileage. Using this information, they’ll determine how much money they are willing to loan you for that vehicle. After approving your application, they’ll issue a check to the vehicle’s current owner, who will then sign the title over to the lender.

Good credit provides access to the best used auto loans

Whether you purchase a used car from a dealership or private party, the interest rate you pay depends on the length of time you need to pay off the loan, how much money you have for a down payment, your income, current debt level, and credit scores.

Average APRs for used car loans vary with marketplace conditions. The Federal Reserve charges banks interest, which is reflected in current interest rates that consumers pay on their debt.

To access used car loans with the lowest interest rates, you’ll have to prove that you present very little risk to the lender. Low credit scores, a history of late payments, and other types of past credit problems are red flags to lenders. They balance their perceived risk by offering borrowers with credit issues a loan with higher interest rates.

How credit scores affect interest rates on used car loans

With a FICO credit score classified as “prime”; 661 and up, borrowers should expect an interest rate between 4.21% and 5.68%. “Non-prime” borrowers with scores between 601 and 660 will pay more, with average interest rates around 10.44%.

“Sub-prime” borrowers with FICO credit scores between 501 and 600 should expect to pay about 16.92 on their auto loan. With scores below 500, lenders may reject the application. In fact, it can be difficult to find traditional used car financing options with scores this low.

Even a small difference between interest rates costs extra money. The national average for a used car loan interest rate is currently 4.21%. This number includes short-term auto loans and loans for people with high credit scores.