November 02, 2023
When you have bad credit – say, a credit score around 550 – getting approved for a car loan can be difficult. While you should try for a pre-approval with your bank or credit union, you more than likely are going to need a subprime lender. These lenders work exclusively with bad credit car buyers and are able to offer financing to many of them. We can help you get connected to one, but first, we want to explain just what you need to do to get a bad credit auto loan.
4 Things to Keep Track of When Financing a Car
Subprime lenders work through special finance dealerships and offer car loans to borrowers struggling with credit issues. These lenders run credit checks but consider outside factors to determine approval. You need to have the proper documentation ready before you head to the dealer, such as proof of income, proof of residence, and proof of a working phone.
Also, you need to keep track of these four things before you start the financing process:
Credit scores and reports – Know where your credit score stands, and what’s on your credit reports. You’re entitled to a free copy of your credit report every week from the three major credit bureaus by visiting www.annualcreditreport.com. As for your credit score, most lenders look at your FICO score, and if your bank or credit card company doesn’t offer a free FICO check, you can see yours for a fee through a number of websites and services.- Finances – Know what your budget is, and how much you’re willing and able to spend on a vehicle. You need to consider additional expenses of car ownership, such as fuel, insurance, and maintenance.
- Interest rates – Look up the current interest rate trends, and see what people with your credit score range are getting. You should, if possible, also rate shop to see what different lenders are willing to approve you for so you can pick the best offer.
- Down payment – A down payment is usually required with a bad credit auto loan. The minimum amount needed varies, but most subprime lenders ask for a down payment of at least $1,000 or 10% of the vehicle’s selling price, whichever is less.
How to Increase Your Approval Odds
As long as you meet the lender’s minimum requirements, you shouldn’t have an issue getting approved for a loan. However, if possible, you should try to increase your approval odds. Two common ways to do this include:
- Adding a cosigner – Not all subprime lenders require a cosigner, but having one on hand doesn’t hurt. Adding a cosigner to a car loan could get you a better interest rate and make the overall cost of the loan cheaper. Your potential cosigner must have good credit and a qualifying income.
- Making a larger down payment – We recommend that you make the largest down payment you can comfortably afford if you have bad credit. The reason is that you end up saving money, and this can really make a difference considering borrowers with bad credit typically qualify for higher interest rates. You can use cash, trade-in equity, or a combination of both to come up with a down payment.
Dealerships That Offer Car Loan 550 Credit Score
When you have a credit score as low as 550 and are on a tight budget, where do you go to find the right auto financing? You could try to get pre-approved for a bad credit car loan with your bank or credit union, but these lenders place a heavy emphasis on your credit score to determine approval.
Instead, you likely need to find a local special finance dealership that’s signed up with subprime lenders. Subprime lenders specialize in financing credit-challenged car buyers, but they have additional requirements you need to meet in order to get approved.
Subprime lenders have rules as to the least amount they can extend for financing, with the minimum typically set at $5,000. In addition, subprime lenders typically require a down payment. You can expect to be asked for the lower amount between $1,000 or 10% of the vehicle's selling price, although this varies by lender.
This means that if you want to finance a car worth $5,000, you would only need $500 to meet the down payment requirement. While it's okay to settle for the minimum down payment, a larger down payment makes your auto loan more affordable.
The Bottom Line
If you have a 550 credit score, you may still be able to get approved for an auto loan. In addition to the right documents, a possible cosigner, and a larger down payment, you also need to work with the right lender. The Car Connection is here to help you find financing.
Here at The Car Connection, we help bad credit car buyers by connecting them to local special finance dealerships that are signed up with subprime lenders. That’s not all we can do, though. With our new and used car sections, you can see what vehicles are for sale near you, and compare different cars to narrow down exactly what you need.
We work with a nationwide network of dealerships that have the lending resources available for people struggling with credit. Get started today for free by filling out our car loan request form.
FAQs
While you technically can get approved for a loan with a 550 credit score, you'll likely face more challenges and pay significantly more for the loan than if your score was higher. Most lenders won't consider borrowers with scores less than 580 – but you may still be able to find one if you know where to look.
Can you get approved for a car with a 550 credit score? ›
The Bottom Line. If you have a 550 credit score, you may still be able to get approved for an auto loan. In addition to the right documents, a possible cosigner, and a larger down payment, you also need to work with the right lender. The Car Connection is here to help you find financing.
How big of a loan can I get with a 550 credit score? ›
What can I get with a 550 credit score? Some lenders like Avant can fund loans for up to $35,000 for borrowers with a minimum credit score of 550. You might also be able to qualify for a car loan or credit card. It depends on what you need the money for and how much you need.
What is the lowest credit score to buy a car? ›
Most used auto loans go to borrowers with minimum credit scores of at least 675. For new auto loans, most borrowers have scores of around 730. The minimum credit score needed for a new car may be around 600, but those with excellent credit often get lower rates and lower monthly payments.
Is 550 a lot for a car payment? ›
An affordable car payment would be one that doesn't exceed $600 a month, based on the rule of thumb that your car payment shouldn't be more than 15% of your take-home pay. If you take out a 60-month car loan at 8% APR, you should aim to take out a car loan of less than $30,000.
What FICO score do car dealers use? ›
The base FICO score is also called FICO Score 8 or 9. It's not designed specifically for auto loans, but many lenders use it. It's a number between 300 and 850, and a higher score means that a person is more likely to make loan payments on time.
What is the easiest car company to get financing? ›
The best car loans for bad credit
- Best for shopping around: myAutoloan.
- Best for buying a car online: Carvana.
- Best from a big bank: Capital One Auto Finance.
- Best for used vehicle selection: CarMax Auto Finance.
- Best for refinancing: Autopay.
Your score falls within the range of scores, from 300 to 579, considered Very Poor. A 550 FICO® Score is significantly below the average credit score. Many lenders choose not to do business with borrowers whose scores fall in the Very Poor range, on grounds they have unfavorable credit.
How long does it take to go from 550 to 600 credit score? ›
For instance, going from a poor credit score of around 500 to a fair credit score (in the 580-669 range) takes around 12 to 18 months of responsible credit use. Once you've made it to the good credit zone (670-739), don't expect your credit to continue rising as steadily.
What credit card will approve me with a 550 credit score? ›
One of the best credit cards for a 550 credit score is the OpenSky® Plus Secured Visa® Credit Card because it has a $0 annual fee and there's no credit check when you apply, so approval is almost guaranteed.
In general, you'll need a FICO credit score of at least 600 to qualify for a traditional auto loan. However, the minimum credit score required with vary from lender to lender. As interest rates increase due to inflation, securing a subprime auto loan may be more difficult — but not impossible.
What credit score do I need to buy a $20000 car? ›
There isn't one specific score that's required to buy a car because lenders have different standards. However, the vast majority of borrowers have scores of 661 or higher.
What credit score is needed to buy a car without a cosigner? ›
What credit score is needed to buy a car without a cosigner? People with prime credit scores of 661 or higher likely don't need an auto loan cosigner.
How much is a $40,000 car loan payment 84 months? ›
For example, a car buyer considering a $40,000 new car loan with an 84-month term at 9% APR would have a monthly car payment of about $623 and pay $12,369 in interest over the seven-year loan.
How much should my car payment be if I make $60000 a year? ›
If your take-home pay is $60,000 per year, you should pay no more than $750 per month for a car, which totals 15% of your monthly take-home pay.
How much is a $20,000 car loan for 5 years? ›
A $20,000 loan at 5% for 60 months (5 years) will cost you a total of $22,645.48, whereas the same loan at 3% will cost you $21,562.43. That's a savings of $1,083.05. That same wise shopper will look not only at the interest rate but also the length of the loan.
Is 500 a good credit score to buy a car? ›
This means that the higher your credit score, the more favorable your interest rate and terms will be. In general, you'll need a FICO credit score of at least 600 to qualify for a traditional auto loan.
What credit score is needed for a car? ›
Key Takeaways. Your credit score is a major factor in whether you'll be approved for a car loan. Some lenders use specialized credit scores, such as a FICO Auto Score. In general, you'll need at least prime credit, meaning a credit score of 661 or up, to get a loan at a good interest rate.
Can I get approved for a car with a 520 credit score? ›
With a bad credit score, you'll likely be offered some of the highest advertised rates. According to data from Experian, borrowers in the subprime category (a FICO score between 501 and 600) can expect an average rate of 12.85 percent for new cars and 18.97 percent for used cars.
Can I recover from a 550 credit score? ›
You can improve a bad credit score by paying your bills on time, paying off debt, avoiding new hard inquiries and getting help building credit.
Credit scores and reports – 