Do you have bad credit? Brand-new credit? If you do, getting a decent auto loan can be tough. The good news is that with some guidance and a little patience, it should be possible to secure a fair car loan regardless of your credit situation. We've got seven tips that will get you on the road to approval.

About 52 percent of used car buyers in third quarter of 2017 had credit scores below 660.

About 52 percent of used car buyers in third quarter of 2017 had credit scores below 660.

2015 Honda Accord Sport Sedan Exterior

2015 Honda Accord Sport Sedan Exterior

Step 1: Understand Your Credit and What It Will Cost You

In the past, getting a copy of your credit report took some serious work. Now, obtaining your credit report is relatively easy. And that's good news because having your report and credit score in hand will make getting a loan far easier. Many credit card companies offer credit monitoring services to their customers. You can also get a copy of your report by visiting sites such as or Credit Karma. Mobile apps from Mint and Experian will also show your credit score if you've signed up for their service.

Once you have the report, take some time to look over your credit history and check if any items need attention, then use the chart below to determine what credit tier you fall into based on your credit score. It will become pretty clear that your credit score will drastically affect the interest rates you will be offered at the dealership or credit union.

Super prime:
Deep subprime:

Now that you know your tier, here are the approximate rates you can expect in the nonprime to deep subprime markets, based on your choice of new or used vehicles:

New-Car Loan:
Nonprime: 6.75 percent
Subprime: 11 percent
Deep Subprime: 13.75 percent

Used-Car Loan:
Nonprime: 10 percent
Subprime: 16.25 percent
Deep Subprime: 19.25 percent

With a good idea of the rates you'll be offered, you can now start shopping.

Step 2: Determine What You Can Afford

If you're on a tight monthly budget, shopping for a used car will likely make the most sense, even when factoring in the lower interest rates offered on new cars. The average new-car loan among the nonprime, subprime and deep subprime credit groups in the fourth quarter of 2017 was $28,832, compared to the $16,922 average for a used car.

Using the average interest rate received by each group of borrowers with scores below 660, here's how those numbers work out in real life for a 60-month auto loan amount of $16,922:

  • Nonprime: 10 percent = $360 per month
  • Subprime: 16.25 percent = $414 per month
  • Deep subprime: 19.25 percent = $442 per month

It's clear that if you're a deep subprime borrower looking for a $300 monthly payment, for example, a loan amount of $16,922 is more than you can handle. If you had your heart set on buying a car in that range, you'd either need to save up enough of a down payment to get your loan amount down to about $11,400 — which, at 19.23 percent interest, amounts to a monthly payment of about $298 — or look for a less expensive car. Understanding this reality before you start the shopping process will do more than help you save time. It will also save you the frustration of looking at cars that don't fit your budget. If you're not sure how much you can afford, we can help.

Step 3: Make a Down Payment

Here is a hard truth about buying a car with relatively new or bad credit: You'll likely need a down payment. Most banks will require "at least 10 percent down payment, or $1,000, whichever is greater," according to Martin Less, president of Nationwide Acceptance, a lender that works with people in the nonprime market.

Using a trade-in as a down payment is a popular option, but some banks may prefer cash. A cash down payment, in the eyes of some lenders, helps prove that you're committed to maintaining the auto loan.

As a rule, the more money you put down, either from cash or trade-in value, the better your chances will be of getting a fair approval.

Step 4: Get Your Documents in Order

Before applying for your loan, have your paperwork in order. Lenders may need to see pay stubs or W-2 or 1099 forms to prove income. If you're in a line of work in which it's hard to prove income — if you're a restaurant server who has a lot of income in cash tips, for example — bring in bank statements that show a history of consistent cash deposits to your account. Some lenders will accept bank statements in place of, or in addition to, standard pay stubs.

A lender wants to know where you live for a couple of reasons. First, it shows stability. A borrower who has lived in her home for 10 years is likely to stay put, and banks like stability. The second reason is that the bank wants to know where to send the repo truck if the borrower stops paying. The lender will want to see your name on a utility bill, rental agreement or mortgage statement that also shows your current address. Some banks may also accept cellphone bills.

Bring recent documents. The lender will likely want to see proof of residency and income that are no more than 30 days old. Having these documents in hand when you arrive at the dealership can be the difference between getting a loan response in a few hours instead of a few days. In addition to documents, some lenders will ask for personal references. When requested, the lender will want names, phone numbers and addresses.

Pro tip: Bring a copy of your credit report with you to the dealership. Having a copy available might help the dealership skip running your credit, which it would need to do to give you a ballpark idea of the approval you'll be offered. It's good to avoid excessive inquiries on your credit. Too many of them can lower your credit score.

Step 5: Pick the Right Car

When it comes to deciding the car you're going to buy, it helps to understand that lenders do not view all cars with the same selling price the same way. Imagine two $12,000 vehicles: The first is a 3-year-old economy car with 36,000 miles. The other is a 10-year-old sports car with 120,000 miles. Although both cars have the same selling price, a lender may approve a loan on one vehicle and not the other. A subprime lender is more likely to approve the newer car with fewer miles.

Lenders use a complicated formula when deciding which cars to finance, and the criteria can vary among banks. The vehicle's age, mileage, history and the buyer's credit history all play a role in what will be approved. So if you're approved for financing, you may have to pick a car that gets a lender's OK, and it might not be the one you had your eye on. Prepare to be flexible. Also, that high interest rate you're going to pay may sting, but remember that for many buyers who are rebuilding credit, it's temporary.

"Generally, if somebody has made good payments for 18 months, assuming the customer hasn't created new credit problems, then there may be an opportunity to get a lower interest rate," says Less of Nationwide Acceptance.

Your options could be trading in the car after you've established a good payment history and buying a different car with a lower interest rate. Or once your credit is on better footing, you could refinance the loan at a lower rate with a different lender.

Step 6: Apply for the Loan

Your first goal should be to get preapproved. Consider your local bank or credit union as starting points. If you have a longstanding relationship with a credit card company, that may also be an option because many offer auto loans. Or if you've paid off an auto loan in the past, see if the bank that carried that loan will write you another one. For some shoppers, it may even be possible to get a loan approval without a hard inquiry.

If these options aren't available to you, head to a big and big-name car dealership. Most dealerships that do lots of business will have a system in place to help get approval for shoppers who have less than perfect credit. In some cases, dealerships will even have dedicated personnel whose job is getting subprime and deep subprime loans approved. This group is often called the special finance department.

Dealerships that regularly work with credit-challenged shoppers will know which lender will be most likely to approve your loan based on your specific situation. Just as all buyers don't have the same level of bad credit, not all lenders have the same requirements. A dealership might need to place a buyer with a recent bankruptcy with a different bank than a buyer who has a low score because of a recent divorce. A dealer who knows where to send a loan can be the difference between a shopper getting approved or not.

Pro tip: Don't be afraid to shop around for auto loans. Often, shoppers with bad credit will jump on the first deal for which they are approved. That's understandable, especially if you've been turned down a few times in the past. But just because you've gotten an approval doesn't mean you have to sign a contract that makes you feel uneasy. If the deal you're offered doesn't sit right with you, keep looking. The reality is that if one dealership can get you approved, chances are good another dealer can, too.

Having poor credit doesn't mean you're stuck with a bad deal, can't negotiate or can't shop for the car that's best for you.

Step 7: Keep Your Car Loan in Good Standing

Make your payments on time. When possible, consider making additional, or larger, payments on your auto loan. Those additional payments will look good on your credit report, make you look good in the eyes of the lender, and save you money in interest while you have the loan. Also doing this will set you up for better terms when it is time to get your next car.

And if you run into trouble while paying the loan, don't hide from the situation. Tell the lender immediately. Some lenders will allow you to make small payments for a time, adding the remaining balance to the end of the loan. If the situation is dire, a bank may even allow a buyer to miss a payment or two while things get better.

"The most important thing they can do is keep communications going with the lender," Less says. "Let the lender know what the circumstances are, and lenders will generally work with the customers through temporary problems."