Negotiating a Car Loan with Bad Credit: Strategies for Success

Negotiating a car loan with bad credit may feel daunting. With the right strategies, however, most drivers can flex some leverage and convince a lender to grant them a car loan with relatively favorable terms. See these car loan negotiation tips for bad credit.

Know Your Credit Situation & Improve It If Possible

It’s important to understand your credit situation before starting car loan negotiations. Poor credit scores are usually those that fall below 579. Lenders may accept an applicant with a low credit score but offer less favorable terms, so improving your credit score to 580 or better is ideal. Even a slight improvement, however, can help your negotiating power.

Obtain a copy of your credit score and review the report details. Bureaus may give different aspects of your credit varying weights, but typically payment history, credit utilization, length of credit history, new credit, and credit mix determine your credit score in that order of importance.

To improve your credit score, try these steps:

• Dispute errors: Look for and dispute errors or discrepancies on your report — these errors can needlessly hurt your credit score.
• Pay down debt: Pay off as much debt as possible to lower your credit utilization. Focusing on high-interest debts often makes the biggest long-term impact.
• Make timely payments: Pay bills on time to improve your credit payment history. Setting up automatic reminders or payments can help prevent missed or late payments.
• Limit new credit applications: Avoid applying for new credit cards or loans in the months leading up to applying for a car loan — hard inquiries temporarily lower your score.

Shop Around for Lenders & Get Pre-Approved

Consider and compare loan offers from various car loan lenders. Different lenders use varying risk assessment criteria or specialize in low-credit applicants. Lender options include:

• Banks and credit unions: Traditional banks and credit unions generally favor applicants with solid credit. If you have an existing relationship with a bank, however, they may be more willing to work with your circumstances and offer a better loan rate.
• Car dealerships: Dealerships often have in-house financing programs for low-credit buyers, such as buy-here, pay-here programs.
• Online lenders: Many online credit unions and other lenders feature auto loan interest rates online, sometimes offering special promotions for better car loan terms.

Pre-approval gives you a clearer understanding of your eligibility and what you can afford. Gather the appropriate documents, including proof of income, employment history, and any assets. After receiving pre-approval offers, carefully consider the interest rates, loan terms, and associated fees.

Focus on the Car Price First

Know how much you can afford every month, but ensure the loan terms make sense for your long-term financial circumstances. A low monthly payment may look good, but it doesn’t represent the full loan picture. A double-digit interest rate might equate to lower monthly payments than a single-digit, but it’ll likely be extended over a longer period, meaning you pay significantly more in interest over the loan’s lifetime. 

Research vehicles you’re interested in online, their fair market value, and the other associated costs you can expect with owning a car. Once you’ve settled on what you can afford, you can enter negotiations with a firm and well-informed goal so you’re less likely to overextend yourself.

Negotiating the Loan Terms

Once you’ve settled on the purchase price, negotiation for loan terms officially begins. Subpar credit may have some limitations, but you still have leverage during this process.

Loan terms to negotiate and understand include:

• Interest rate: Interest rate refers to the interest you’ll pay for the loan. Improve your negotiation power by checking average interest rates for your credit and bringing your other loan pre-approvals to negotiations.
• Loan term: This term is the duration over which you’ll repay the loan. Most car loans are 24, 36, 48, 60, or 72 months. Shorter terms usually equate to higher monthly payments but more paid to principal rather than interest.
• Down payment: A larger down payment can reduce your loan amount and leverage more favorable terms overall.
• Origination and other fees: Car loan lenders may include an origination fee, which covers the cost of processing the loan. Other fees may apply for loan application, documentation, late payment, or prepayment. Some lenders may waive or reduce these fees.
• Loan type: A secured loan generally has better interest rates than an unsecured loan.
• Loan structure: Fixed rates provide consistency throughout the loan, but may not be as favorable depending on market shifts. The benefits of variable rates also depend on market changes.

Additional Negotiation Tips for Bad Credit

Certain strategies can help you obtain a better loan for your circumstances. For example, asking a trusted family member or friend to be your co-signer can improve your chances of approval and securing better terms.

Selling or trading in a car may also boost your negotiating power more than expected. Trading in at a dealership may allow you to get better pricing on your new vehicle.

Stay positive and confident, and know your rights during the negotiation process. Resist high-pressure sales tactics — compromising your finances usually isn’t worth it. Instead, put your trust in a reputable lender with your best interests in mind. At Hawthorne Auto, for instance, we know that the best car is the one that suits your needs, not the one that strains your budget.

Specific Concerns & Situations

Certain situations may complicate the process of negotiating a car loan with bad credit. Consider these strategies:

• Bankruptcy: Demonstrate improved financial habits if you’ve previously declared bankruptcy. Hawthorne offers flexible financing solutions for customers with past repos or bankruptcies.
• Unemployment or irregular income: Be transparent with your lenders about your income. Some offer financing programs to support irregular income — at Hawthorne Auto, we accept disability, SSI, and government assistance.
• Minimal down payment: Look for lenders with down payment assistance programs. Hawthorne Auto customers can take up to 5 months after driving off the lot to pay off their down payment.

Call Hawthorne Auto for Your Next Vehicle

With over 25 years of supplying Los Angeles with great deals on used cars, Hawthorne Auto Square is the go-to dealer for a variety of vehicle makes and models. Get into your next vehicle with competitive financing and other advantages — contact us or schedule online.

Frequently Asked Questions

Can I get a car loan with a credit score under 600?

Many lenders offer loans for people with credit scores below 600, but they won’t have terms as favorable as high-credit applicants.

How much should I save for a down payment?

Any amount of down payment helps secure better loan terms. In general, aim to save between 10% and 20% of the car’s total price.