Where to Find Second-Chance Car Loans
Second-chance car loans can help you pay for a vehicle when you have bad credit — such as when bankruptcy or debt default wrecks your credit score. But watch out: Second-chance auto loans can be expensive.
What is a second-chance car loan?
While there are car loans for those with bad credit, a history of late payments, bankruptcy or repossession might make even these difficult to get. In such cases, second-chance car loans — also called subprime car loans — may offer a way to borrow money.
Check your credit score — you can do this for free with LendingTree Spring — and see where you stand. There’s no specific red line separating good credit from poor credit, but a FICO score below 580 (or a VantageScore below 600) can make it tough to get a loan.
On the downside, though, second-chance car loans often come with high interest rates and additional fees. Before you take out a subprime auto loan, take a careful look at the cost to be sure you can afford the payment.
Where can you find second-chance auto loans?
Not every lender offers second-chance car loans. Below are a few places where you are likely to find auto loans designed for people with bad credit.
Dealerships
Buy here, pay here (BHPH) car dealerships may have second-chance auto loans for customers with fair to poor credit. These loans are provided by the dealership itself and tend to come with higher interest rates and fees.
A BHPH dealership might even install a GPS tracking device to make it easier to repossess your vehicle if you fall behind in your payments.
Popular dealers Carvana and CarMax may be worth checking out — each offers prequalification, so you can see which financing options are available before you buy.
Online lenders and marketplaces
When your credit score isn’t the best, an online lender might be a good choice, as it’s easy to shop around for a good car loan.
Online marketplaces, including LendingTree, can help you find loans that fit your finances — and possibly even a preapproved loan. You can also browse our list of best auto loan rates.
Pros and cons of second-chance car loans
When you need a car but don’t qualify for traditional financing, a second-chance car loan may be your only option. But before you apply, understand the drawbacks of these loans, which mainly involve the higher cost.
| Pros | Cons |
|---|---|
Qualify with bad credit Improve your credit score over time May be only funding option | High interest rates Extra fees Larger down payment may be necessary |
Is a second-chance car loan right for you?
Qualifying for a second-chance auto loan doesn’t automatically mean it’s your best option. Below are a few questions to consider before you apply.
Can I find a better interest rate?
Borrowers with poor credit or no credit history are considered risky, so lenders usually charge higher interest rates. Checking out financing options at a bank or credit union or through an online lender or marketplace can help you find a second-chance auto loan with the best rate available to you.
Can I afford the monthly car payments?
Before you borrow money to buy a car, look closely at your finances to make sure you can afford the monthly car payments. Some second-chance auto loans come with extra fees, so be sure to add these when looking at your budget to decide whether the cost fits your budget.
Does this lender report to the credit bureaus?
A second-chance auto loan may improve your credit score if you make timely payments. But some lenders, including many BHPHs, don’t always report to the credit bureaus. Check to see if this is the case — if the lender doesn’t report your on-time payments, the loan won’t help you with rebuilding your credit.
Will this lender require a GPS tracker?
Under your financing terms with a BHPH dealer, you might be required to install a starter interrupter or keep a GPS tracker in your vehicle. These devices make it easier for the second-chance loan lender to repossess your car if you fall behind in payments.
Alternatives to second-chance auto loans
Before taking out a second-chance car loan, consider alternative ways to borrow money when you need to buy a car.
- Find a cosigner. A friend or family member with good credit could help you qualify for traditional financing if they are willing to cosign your loan. With a cosigner, you may get a better rate and loan terms, though note that the cosigner becomes responsible for paying your debt if you default.
- Consider a local credit union. Some credit unions offer second-chance auto loans or other lending options for members with poor credit. You may get better loan terms working with your credit union.
- Improve your credit score. When you don’t have an immediate need to buy a car, focus on improving your credit score. You can do this by checking your credit report for errors, staying current with your bills, paying down debt and even opening a secured credit card account, if needed.
- Pay in cash. Of course, if you have enough cash to purchase the car in full, you can save yourself the cost of a second-chance car loan, or any loan for that matter. Even just increasing your down payment might help you qualify for a lower-cost traditional car loan.