Getting a Car Loan When Your Credit Score Is Low

How bad credit affects your car loan options

A low credit score does not lock you out of buying a car, but it changes what lenders will offer you. Banks and credit unions typically require a score of 620 or higher; below that, you are looking at subprime lenders — finance companies that specialize in loans to people with poor credit histories. These lenders exist, they fund loans regularly, and the process works. What changes is the interest rate, the down payment required, and the terms of the loan itself.

Your credit score affects the interest rate more than anything else. A borrower with a score of 750 might get a rate around 4 to 6 percent; a borrower with a score of 550 might see 15 to 29 percent on the same car. Over a five-year loan, that difference costs thousands of dollars. Down payments are also steeper — subprime lenders often require 10 to 20 percent down, compared to 0 to 10 percent for prime borrowers. Some also require a co-signer, someone with better credit who agrees to pay if you do not.

Key Takeaways

• Subprime lenders fund car loans for people with credit scores below 620, but charge higher interest rates and require larger down payments.
• Your actual interest rate depends on your score, income, employment history, and the vehicle you are buying — not just one factor.
• Credit unions often offer lower rates than buy-here-pay-here dealers and online subprime lenders, so check yours before going elsewhere.
• A co-signer with good credit can lower your rate, but they are legally responsible if you miss payments.
• Improving your credit before you buy — even by a few months — can save you hundreds of dollars in interest.

Where to find subprime auto lenders in South Carolina

You have three main routes: credit unions, traditional subprime lenders, and buy-here-pay-here dealers. Each works differently and costs different amounts.

Credit unions are usually the cheapest option if you belong to one. Many credit unions lend to members with scores as low as 550 and charge 2 to 8 percentage points less than subprime finance companies. You need to be a member first — some are open to anyone in a certain county or profession, others require employment at a specific company or membership in an organization. Call your bank or search online for "credit unions near me South Carolina" to find one you can join.

Subprime finance companies operate online and through dealerships. Companies like Santander Consumer USA, Westlake Services, and AmeriCredit fund thousands of loans monthly to borrowers with low scores. You can apply directly through their websites or through a dealership that partners with them. These lenders pull your credit report, verify your income, and make a decision in hours or days. Interest rates run 15 to 29 percent depending on your score and the loan term.

Buy-here-pay-here dealers are car lots that also finance the loans themselves. You make weekly or bi-weekly payments directly to the dealer, often in cash or at their office. These dealers charge the highest rates — sometimes 18 to 29 percent — and often require a larger down payment. They also typically install a GPS tracker on the vehicle and can disable it remotely if you miss a payment. Use this option only if you cannot get a loan anywhere else; the cost is steep and the terms are strict.

What lenders look at beyond your credit score

Your credit score is one piece of the picture. Subprime lenders also examine your income, employment history, and the vehicle itself.

Income and employment matter because lenders need to know you can make the monthly payment. Most require proof of income — a recent pay stub, tax return, or bank statements showing regular deposits. Some require that you have been at your current job for at least three to six months. If you are self-employed, expect to provide two years of tax returns. Lenders also look at your debt-to-income ratio: if your total monthly debt payments (car loan, credit cards, student loans, rent) exceed 50 percent of your gross monthly income, some will decline you or offer a higher rate.

The vehicle itself affects your rate and terms. Lenders prefer newer cars with lower mileage because they hold their value better. A 2015 Honda Civic will get you a better rate than a 2008 model with 150,000 miles. Some subprime lenders have age and mileage limits — they may not finance anything older than 10 years or with more than 120,000 miles. Luxury brands and sports cars are riskier in their eyes, so rates go up.

Your down payment also influences the offer. A larger down payment — 15 to 20 percent instead of 10 percent — signals that you are serious and reduces the lender's risk. It also lowers the amount you need to borrow, which can improve your rate by a full percentage point or two.

How to compare loan offers and understand the terms

Once you have found lenders willing to work with you, comparing their offers requires looking at three numbers: the interest rate, the loan term, and the total amount you will pay.

The interest rate is what you see advertised, but it is not the whole story. A 20 percent rate on a $15,000 loan over 60 months costs far more than a 20 percent rate on a $10,000 loan over 36 months. Ask each lender for the annual percentage rate (APR), which includes the interest rate plus any fees they charge. This is the number to compare across lenders — it is the true cost of borrowing.

The loan term is how long you have to pay it back, usually 36 to 72 months. A longer term means a lower monthly payment but more interest paid overall. A 60-month loan at 20 percent costs roughly 10 percent more in total interest than a 48-month loan at the same rate. Do not stretch the term just to lower the monthly payment if you can avoid it.

Ask for the total amount financed — the loan amount plus all fees. Some subprime lenders add documentation fees, origination fees, or GPS tracking fees. These can add $500 to $1,500 to what you owe. Get this number in writing from each lender so you can truly compare.

Using a co-signer to lower your rate

A co-signer is someone with better credit who agrees to pay the loan if you do not. Adding a co-signer can lower your interest rate by 2 to 5 percentage points because the lender now has a backup borrower with a stronger credit history.

The catch is that a co-signer is legally responsible for the full debt. If you miss a payment, the lender will contact them. Late payments go on their credit report, not just yours. If you default entirely, they can be sued. Choose a co-signer carefully — usually a parent, spouse, or close family member — and make sure they understand what they are signing up for. Many co-signers do not realize they are on the hook until a payment is missed.

Before asking someone to co-sign, make sure the rate reduction is worth it. If a lender offers you 22 percent alone and 18 percent with a co-signer, that is a meaningful savings. If the difference is half a percentage point, it may not be worth putting someone else's credit at risk.

Steps to improve your credit before buying

If you have time before you need a car, spending a few months improving your credit can save you thousands in interest. You do not need a perfect score — moving from 550 to 600 can drop your rate by 2 to 4 percentage points.

Check your credit report for errors. You can get a free report from each of the three major bureaus — Equifax, Experian, and TransUnion — once per year at annualcreditreport.com. Look for accounts you do not recognize, wrong balances, or late payments that should have aged off. Dispute any errors in writing; the bureau has 30 days to investigate.

Pay down credit card balances if you can. Lenders look at your credit utilization — how much of your available credit you are using. If you have a $5,000 credit limit and a $4,500 balance, that is 90 percent utilization, which hurts your score. Getting it below 30 percent — $1,500 or less — improves your score noticeably within a month or two.

Make all payments on time for at least three to six months. Payment history is 35 percent of your credit score. Even one late payment can drop your score 50 to 100 points; conversely, a string of on-time payments rebuilds it steadily. Set up automatic payments if you struggle to remember due dates.

Do not close old credit cards after you pay them off. Closing an account lowers your total available credit and can hurt your score. Keep the card open and use it occasionally — a small purchase every few months, paid off in full — to show active, responsible use.

What happens after you get the loan

Once you have signed the paperwork and driven off the lot, your obligations begin immediately. Subprime loans come with stricter terms than prime loans, so understand what you agreed to.

Most subprime lenders require full-coverage auto insurance — not just the liability coverage required by South Carolina law. They want to know the car is protected if it is damaged or totaled. You will need to provide proof of insurance before you take the car home, and the lender may require that they be listed as the lienholder on your policy.

If you have a GPS tracker installed, know how it works. Some dealers use it only to locate the car if it is repossessed; others monitor your location in real time. Some can disable the engine remotely if you miss a payment. Read your contract to understand what the dealer can and cannot do.

Missing a payment has serious consequences. Most subprime lenders will repossess the car after one or two missed payments, sometimes without warning. Once repossessed, the car is sold at auction, and you still owe the difference between what it sells for and what you owe — called a deficiency. You can also be sued for that amount. If you think you will miss a payment, contact the lender immediately; some will work out a modified payment plan.

Frequently Asked Questions

Can I get a car loan with a credit score below 500?

Yes, but your options narrow and your rate climbs. Some buy-here-pay-here dealers and a few online subprime lenders will finance scores that low, but rates often exceed 25 percent. Credit unions rarely go below 550. If your score is very low, waiting a few months to improve it can save you significant money.

What if I do not have a down payment saved?

Some subprime lenders offer zero-down financing, but it is rare and comes with a higher interest rate. Most require at least 10 percent down. If you cannot save that much, consider buying a less expensive car or waiting a few months to build up savings. A smaller down payment means a larger loan and more interest paid overall.

Will getting a subprime auto loan hurt my credit score?

The application itself causes a small, temporary dip — a few points — because the lender pulls your credit report. Once you have the loan and make on-time payments, your score will improve over time. Payment history is the largest factor in your score, so a year of on-time car payments can raise your score 50 to 100 points.

Can I refinance my subprime auto loan later?

Yes, if your credit improves. After 12 to 24 months of on-time payments, your score will likely be higher, and you may may have access to for a better rate from a credit union or traditional lender. Refinancing can lower your monthly payment or shorten your loan term. Contact your current lender to ask if there is a prepayment penalty before you refinance.

What is the difference between a subprime lender and a buy-here-pay-here dealer?

Subprime lenders are finance companies that fund loans but do not own the car — you own it once you pay off the loan. Buy-here-pay-here dealers own the car and finance it themselves; they can repossess it more easily and often install tracking devices. Subprime rates are usually lower, and you have more ownership rights. Use buy-here-pay-here only if no other lender will work with you.