diff --git a/lib/bundler/source/git.rb b/lib/bundler/source/git.rb
index 3f69ea1e65..9ce74adc2c 100644
--- a/lib/bundler/source/git.rb
+++ b/lib/bundler/source/git.rb
@@ -188,9 +188,11 @@ module Bundler
       end
 
       def specs(*)
-        set_cache_path!(app_cache_path) if has_app_cache? && !local?
+        set_cache_path!(app_cache_path) if use_app_cache?
 
         if requires_checkout? && !@copied
+          FileUtils.rm_rf(app_cache_path) if use_app_cache? && git_proxy.not_a_bare_repository?
+
           fetch
           checkout
         end
@@ -321,6 +323,10 @@ module Bundler
         cached_revision && super
       end
 
+      def use_app_cache?
+        has_app_cache? && !local?
+      end
+
       def requires_checkout?
         allow_git_ops? && !local? && !cached_revision_checked_out?
       end
diff --git a/lib/bundler/source/git/git_proxy.rb b/lib/bundler/source/git/git_proxy.rb
index 2fc9c6535f..d6ff7fb488 100644
--- a/lib/bundler/source/git/git_proxy.rb
+++ b/lib/bundler/source/git/git_proxy.rb
@@ -84,6 +84,10 @@ module Bundler
           end
         end
 
+        def not_a_bare_repository?
+          git_local("rev-parse", "--is-bare-repository", dir: path).strip == "false"
+        end
+
         def contains?(commit)
           allowed_with_path do
             result, status = git_null("branch", "--contains", commit, dir: path)
diff --git a/spec/bundler/cache/git_spec.rb b/spec/bundler/cache/git_spec.rb
index 4e3038f3ce..cbd755872c 100644
--- a/spec/bundler/cache/git_spec.rb
+++ b/spec/bundler/cache/git_spec.rb
@@ -258,6 +258,46 @@ RSpec.describe "bundle cache with git" do
     end
   end
 
+  it "can install after bundle cache generated with an older Bundler that kept checkouts in the cache" do
+    git = build_git("foo")
+    locked_revision = git.ref_for("main")
+    path_revision = git.ref_for("main", 11)
+
+    git_path = lib_path("foo-1.0")
+
+    gemfile <<-G
+      source "https://gem.repo1"
+      gem "foo", :git => '#{git_path}'
+    G
+    lockfile <<~L
+      GIT
+        remote: #{git_path}/
+        revision: #{locked_revision}
+        specs:
+          foo (1.0)
+
+      GEM
+        remote: https://gem.repo1/
+        specs:
+
+      PLATFORMS
+        #{lockfile_platforms}
+
+      DEPENDENCIES
+        foo!
+
+      BUNDLED WITH
+         #{Bundler::VERSION}
+    L
+
+    # Simulate an old incorrect situation where vendor/cache would be the install location of git gems
+    FileUtils.mkdir_p bundled_app("vendor/cache")
+    FileUtils.cp_r git_path, bundled_app("vendor/cache/foo-1.0-#{path_revision}")
+    FileUtils.rm_rf bundled_app("vendor/cache/foo-1.0-#{path_revision}/.git")
+
+    bundle :install, env: { "BUNDLE_DEPLOYMENT" => "true", "BUNDLE_CACHE_ALL" => "true" }
+  end
+
   it "respects the --no-install flag" do
     git = build_git "foo", &:add_c_extension
     ref = git.ref_for("main", 11)