Bad Credit Car Loans: What They Cost and How to Pay Less

In short

In the second quarter of 2026, people with scores from 501 to 600 paid an average of 19.10% APR on used cars and 13.52% on new ones, according to Experian, against 8.81% and 6.15% for scores from 661 to 780. On a $20,000 used-car loan over 60 months, that gap is about $107 a month and $6,400 in interest. You can narrow it: get a rate from a bank or credit union first, put money down, keep the term short, and read the contract for add-ons you did not ask for.

Used-car APR, score 501–600: 19.10% average
New-car APR, score 501–600: 13.52% average
Used-car APR, 500 or lower: 21.62% average
Interest on $20,000 over 60 months: $11,195 at 19.10%

How lenders look at a low score

A car loan is secured by the car, so lenders will lend to people with damaged credit more readily than they will for an unsecured personal loan. What changes is the price. The lender looks at your score, your income and how much of it already goes to debt, how long you have held your job, the size of your down payment, and the car itself. A low score tells the lender that late payments, collections or a default sit somewhere in your recent history, and it charges more to cover the chance that it happens again.

Experian's quarterly market data shows how steep the steps are. The figures below are averages for loans made from April to June 2026, grouped by VantageScore 4.0 bands; your own offer can be higher or lower. The used-car column is higher in every band, partly because an older car is worth less if the lender has to take it back.

Average car loan APR by credit score band, second quarter of 2026 (Experian market data, VantageScore 4.0)
Credit score	New car APR	Used car APR
781 or higher	4.41%	6.29%
661 to 780	6.15%	8.81%
601 to 660	9.71%	13.93%
501 to 600	13.52%	19.10%
500 or lower	16.11%	21.62%

Not sure where you fall? Our sister site Funditia explains how credit scores work and which version a lender may pull.

What a higher rate does to the payment

The rate matters more than most buyers expect, because you pay it on the whole balance for years. Take a $20,000 used-car loan repaid over 60 months at each band's average rate:

$20,000 financed for 60 months at the average used-car APR for each score band (our calculation)
Score band	APR	Monthly payment	Total interest
661 to 780	8.81%	$413.33	$4,799.80
601 to 660	13.93%	$464.64	$7,878.40
501 to 600	19.10%	$519.91	$11,194.60
500 or lower	21.62%	$548.07	$12,884.20

A longer term does not fix this. At 19.10%, stretching the same loan from 60 to 72 months lowers the payment to $468.68 but raises the interest to $13,744.96. Cutting it to 48 months raises the payment to $599.06 and drops the interest to $8,754.88. Try your own figures in the car payment calculator.

Ways to get a lower rate or a smaller loan

Put money down

Cash or trade-in equity shrinks the loan and the lender's risk. On the example above, $3,000 down at 19.10% cuts the payment to $441.93 and the interest to $9,515.80.

Get an outside rate first

A quote from a credit union or bank gives the dealer a number to beat. See getting preapproved.

Choose a cheaper car

A smaller loan on a reliable, less expensive car is easier to repay and leaves room for repairs and insurance.

Add a cosigner

A cosigner with stronger credit can bring the rate down, but that person owes the whole debt if you stop paying. Read cosigner car loans first.

Before you apply, pull your credit reports and dispute anything that is wrong. A collection that is not yours or a paid account still shown as unpaid can cost you a full score band. If you can wait a few months, paying every bill on time and lowering card balances can move you up, and the table shows how much each band is worth.

Your income and existing debts count as well. A lender that sees a steady job and room in your budget may accept a lower score, while a high payment compared with your take-home pay can lead to a smaller loan or a demand for more money down. Bring recent pay stubs and proof of address to the application, so the lender does not have to guess.

Warning signs in a bad-credit deal

Only the payment is discussed. If the salesperson will not tell you the price, the APR and the term, the deal is being shaped around a payment that hides the total cost.
Add-ons you did not request. Service contracts, GAP, theft-etching or credit insurance are optional. Each one financed at 19% costs far more than its sticker price.
A call back to sign again. If you drive the car home and the dealer later says the financing fell through and asks you to sign at a higher rate, read about yo-yo financing before you agree.
The lot is the lender. At buy-here-pay-here dealers the dealer finances the car itself. Rates tend to be the highest in the market and the payment terms strict; compare first with how buy here pay here works.
A tracking or starter-interrupt device. Some contracts allow a device that locates the car or stops it from starting after a missed payment. Ask whether one is installed and read the terms.

Steps to finance a car with bad credit

Check your reports at AnnualCreditReport.com and dispute errors before you shop.
Set a budget that covers the payment, insurance, fuel and repairs, using the car affordability calculator.
Apply with a credit union or bank and note the APR, the maximum amount and the expiry date of the offer.
Negotiate the price of the car before you discuss financing or a trade-in.
Let the dealer try to beat your rate, then compare offers by APR, finance charge and total of payments for the same term.
Read the contract line by line, and refuse any product you did not ask for.

After a year of on-time payments your score may have improved enough to refinance at a lower rate, if the car is still worth more than the balance.

Questions people ask

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

Often yes, but expect a high rate: Experian's average for scores of 500 or lower was 21.62% on used cars and 16.11% on new cars in the second quarter of 2026. A larger down payment or a cosigner can improve the offer.

How much down payment do I need with bad credit?

No federal rule sets a minimum. Lenders set their own, and a bigger down payment lowers both the loan and the lender's risk, which can bring the rate down.

Is buy here pay here a good idea with bad credit?

It can be a last resort, but rates are usually the highest available and the terms strict. Try a credit union or bank first, then compare by APR and total cost.

Will shopping for a car loan hurt my credit score?

Each application can add a hard inquiry, but FICO scoring treats auto loan inquiries made within a shopping period as one: any 14-day span in older FICO versions and any 45-day span in the newest. You may not know in advance which version a lender uses, so keep your rate shopping within two weeks.

Sources

Facts on this page were checked against these sources on October 26, 2026. Payment figures are our own calculations from Experian's April to June 2026 averages.

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