Car Buyer Labs

Car Buying Advice, Tips, and Reviews

A salesperson is handing keys to a smiling man in a silver car.

Can You Get A Car Loan With Bad Credit?

Is there such a thing as a bad credit car loan? Is it possible to get a car loan while you have bad credit or no credit at all? Simply put, the answer is yes. It is definitely possible to get a car loan even while you have bad credit or no credit at all. Still, it doesn’t mean that the process will be easy or that you won’t have to make up for your credit history in other ways, typically with interest rates and higher fees. That’s the short of it.

The longer explanation is that bad credit or no credit puts a lot of potential car shoppers in a rut where they sometimes feel trapped. Most people in the workforce know that they need a vehicle to get to and from their jobs, and without a car, it makes it hard for that to happen. But if you have bad credit or no credit and your car goes down, how do you afford a new one if you can’t get a car loan? Well, there are ways around that conundrum, typically in the form of high-risk loans, or something called Buy here, pay here, which is an auto loan method employed by some car dealerships. Alternatively, there are services that offer approval processes to find you the best way to get an auto loan without sacrificing the kind of vehicle you want to buy.

Can You Buy A Car Without A Loan?

Technically, you don’t need an auto loan to purchase a car if you have the cash on hand to pay for what you want. However, most people who have bad or low credit scores often don’t have the cash on hand to purchase what they want, hence why they go the route of attempting to secure an auto loan. However, if you have rocky finances but you still need a car, the financing route through an auto loan is usually the best bet. This requires either getting pre-qualified or pre-approved for an auto loan before you can take the next step.

Pre-qualification and pre-approval are two different means of acquiring a loan for a new or used car purchase. The first relates to checking to see if you’re qualified for a loan, while the second relates to getting approved for a loan. Both can sometimes help illuminate your financial situation and let you know what kind of loans you qualify for, as well as what sort of financial route you might want to take in order to secure an auto loan.

A saleswoman is talking to a buyer about paperwork in a dealership.

How Does Getting Pre-Qualified For An Auto Loan Work?

Many dealerships offer pre-qualification for auto loans these days. This actually helps expedite the process of getting approved for an auto loan. The pre-qualification process can sometimes include going through what’s called a soft credit check to see if you have the necessary credentials for an auto loan.

When you go to a lender, a bank, or a credit union with the intent of getting pre-qualified for a loan, the agent or sales representative may do a basic dive into your credit history, but essentially they will look into your income, payment potential, and base monthly expenses to see whether or not you can actually qualify for a specific loan. Pre-qualifying for a loan is a lot less involved than getting pre-approved for a loan, and usually, pre-qualification is to determine how much you’ll be able to take out for a loan and what sort of loan type you qualify for.

This is a good process for those with bad or no credit to determine if the current income you have still qualifies you for a loan and at what interest rates. Even with bad or no credit, you can still sometimes receive qualification for an auto loan, though usually, it’s of a higher interest rate compared to loans that would be available for those with a good credit score or a high credit rating.

How Does Getting Pre-Approved For An Auto Loan Work?

Getting pre-approved is a lot more involved than getting pre-qualified for an auto loan. This is due to the fact that pre-qualification for an auto loan is about qualifying for a loan and what sort of interest rates you may incur, what your payments might be, and overall it’s an entry-level process to that next step for acquiring an auto loan. Pre-approval is the actual step required for securing a loan, and it’s a step above simply inquiries and estimates. It is about what you will actually pay and taking that step into securing a legitimate auto loan from a lender, credit union, or bank.

For pre-approval, you’ll have to provide more than just your basic information, such as your financial income and monthly expenses. Pre-approvals involve deep scrutiny into your credit history with a hard credit check. This means that you’ll get a detailed report on your credit history, debt balance, and income. This approval process can also involve receiving hard data that can be used to bargain loan prices or even securing the means to a loan when it’s time to purchase a car.

The downside to pre-approval processes is that a hard credit check can affect your overall credit rating if you have many checks done over a period of time. However, if you get several checks done within the two-week time span, then they’re all counted as a single check, and your credit score won’t be affected much. Of course, if you have poor or bad credit, then getting pre-approved may work against you more than help you. But, thankfully, there are some ways around that.

A bad credit car loan is stamped with 'Approved' next to car keys.

What Is Buy Here, Pay Here?

If traditional loans just don’t work, or you find yourself unable to get a loan that fits your needs after going through the pre-qualification process, there is the option that some dealerships use called Buy Here, Pay Here, or BHPH for short. This is an alternative loan method to going the traditional route where you get a loan from a loan officer, credit union, or bank. Instead, the dealership offers the loan directly to you for your car. So you would be taking out a loan from the dealer to pay the dealer for the car, truck, or SUV you plan to purchase.

Obviously, there is a catch to the Buy Here, Pay Here method of auto loans. Usually, these auto loans come with higher interest rates for people with lower credit scores or no credit at all. The reason for the higher interest rates is because the dealer has to take on the loan overhead as a high-risk lender since someone with no credit or bad credit may not be reliable in paying back the loan.

The higher interest rates may make Buy Here, Pay Here options seem a little less inviting for some potential car shoppers. But if you’re regularly dealing with bad credit, then it may be your best option when it comes to getting an auto loan. However, the safest bet and most reliable process for getting an auto loan is signing up for pre-qualification. There’s nothing really to lose with this process, and you can shop through your options before making any serious commitments.

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