So, you've been rejected for a car loan and your current vehicle is about to break down (yet again). This series of events can leave you in a seemingly hopeless situation. A reliable car can mean the difference between staying gainfully employed and having to miss work due to lack of transportation. For some people, their vehicle is the only way to run essential errands like grocery shopping, doctor's appointments or getting family members around. Just because your credit score caused your car loan application to get rejected in the past or you've struggled with bankruptcy or vehicle repossession doesn’t mean you need to go without reliable transportation forever. Second chance car loans can be the solution. We’ll explain what second chance car loans are, the benefits vs. risks, and how to find the right car loan for you.

Second Chance Car Loans Defined  

car loan denied

A second chance car loan is another way to define a bad credit or subprime car loan. As the name suggests, second chance car loans give car shoppers a second chance at owning a vehicle, even if they were rejected in the past. The tricky thing about subprime loans is that not all auto finance companies classify subprime credit the same way. Even if your credit has been classified as subprime in the past doesn't mean it will fall into that category with every lender. Before applying for a car loan, you should become well acquainted with your credit report and know the range your score falls into. As an example, the table below shows how Experian classifies FICO credit scores. 

Fico credit score range

Source: Experian

Not every dealership or bank will offer second chance car loans and not every second chance car loan that you're offered will be right for you. It takes more planning and research to finance a vehicle with bad credit than it does with a high credit score, but it is possible. Before jumping in and signing your life away to get that car, you should understand the benefits and risks of second chance car loans. 

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Benefits vs. Risks

pros and cons of a second chance car loan

Second chance car loans can provide a solution for many car shoppers with bad credit, but they don't come without some risks and drawbacks. These are the reasons to pursue a second chance auto loan and the risks to be aware of before you move forward with any subprime car loan.


For those with a rocky credit history, second chance car loans can be the only way to get a car they desperately need. In an ideal scenario, the subprime car shopper will compare several car loan options and the interest rates offered. They can then proceed with the option that gives them the best deal and purchase an affordable vehicle with manageable monthly payments. Once they are paying off the loan on time every month, they will steadily improve their credit score. By boosting the borrower's credit, this process will make their future car purchases easier to finance. 


Although they offer a solution for many car buyers, second chance car loans come with their share of risks. While these shouldn't automatically deter you from pursuing auto financing, it's important to be aware of them before heading to a dealership.

  • High Interest Rates: Second chance borrowers pose a greater risk to the lender. Their bad credit score tells the lender that the car shopper has not managed their debt responsibly in the past. Lenders compensate for the risk with high interest rates on the loan. The cost of higher interest rates, usually in the double digits, can add up to thousands of extra dollars over the lifetime of the loan compared to the interest rate for someone with good credit. If the borrower is not able to keep up with their monthly payments, their credit will take another hit and they risk losing the vehicle entirely. 
  • Down Payment: A down payment will likely be required for the same reason as the higher interest rates (it helps balance the risk to the lender). If you are able to save up for a down payment, you're more likely to get approved for an auto loan with bad credit. However, not every car shopper will be prepared for a large down payment, especially if their car breaks down unexpectedly. 
  • Invasive Tracking Mechanisms: Some subprime auto lenders force the borrower to have a tracking mechanism in the vehicle and are able to disable the vehicle if the borrower fails to make payments. Not all car buyers will have the same tolerance for these invasive tracking mechanisms.

Where to Find a Second Chance Car Loan

where to get a second chance car loan

If going the traditional auto financing route has gotten you nowhere, you can look for alternative lenders that offer second chance car loans. These can include credit unions, buy-here-pay-here dealerships, and online lending companies.

  • Credit Unions: Credit unions are non-profit organizations that typically offer lower interest rates than banks and are more flexible about accommodating members with bad credit. You will need to be a member of a credit union to be a customer. Your options include local credit unions, federal credit unions, military credit unions, and group or employer credit unions. 
  • Buy-Here-Pay-Here Dealerships: These dealerships will both sell you the vehicle and finance it themselves. They are much more likely to offer second chance car loans to borrowers with bad credit because they are motivated to sell the vehicles. The car buying process from a BHPH dealer will look different than a regular dealership since they will do the financing step first to determine which car they will sell you.
  •  Online Second Chance Car Loans: Before rushing into the dealership to get auto financing, you should consider getting pre-approved for a car loan. You can apply via multiple online lenders that specialize in bad credit auto financing and compare offers to get the best deal. This step in the car buying process is important for those with compromised credit since interest rates can be extremely high for this group. By shopping around for the best rates, the borrow can save hundreds of dollars over the loan terms. 

Get Pre-Approved for a Car Loan