Buying a car with bad credit can be a scary experience. If you have poor credit scores, lenders will typically either refuse to offer you an auto loan or take advantage of your situation and offer you terms that only benefit them in the long run.
But don’t let this deter you if you’re in dire need of a car. There are all sorts of things you can do to get yourself a car as soon as possible. Credit is important, but it’s not the only factor in buying a car and ensuring that you have reliable transportation.
If you’re in the market for a new car, or at least one that’s new to you, keep reading to learn some of the best tips for buying a car with bad credit.
Check Your Credit Score
If you think you might have bad credit, or if you know your credit score is lower than you would like, the first thing you should do before car shopping is check your score. Checking your credit score and reviewing your credit reports from major credit bureaus is free and easy. Just visit a free credit management site like Credit Karma, and you can check your FICO credit score as often as you’d like throughout the month.
When you’re looking through your credit report, make sure it doesn’t include any mistakes or errors that could lower your score. Some items on your credit report—such as late or missed payments, loan defaults or too much credit utilization—have a big impact on your credit score. If something was reported to the credit bureaus in error and has been added to your credit report, it may not accurately reflect your score.
If you do notice errors on your credit report, you can dispute them with the credit reporting agencies and have them corrected to raise your score. This can be beneficial in any loan situation, not just when you’re shopping for a car.
Know How Much You Can Afford
As with all big purchases, it’s important to sit down and consider how much car you can afford. We’d all like to buy a brand-new Lamborghini Aventador, or a bit more realistically, maybe a new Chevrolet Corvette Z06 or even a Ford F-150. The thing is, all of these vehicles are too expensive for most people!
Modern-day cars are pricey, and it’s important to avoid getting in over your head financially. If you have bad credit going into a car purchase, the lender will be reluctant to lend you money in the first place. Even if you do get a loan, the interest rate will likely be high, and the total amount you pay for the car will be far more than you originally thought.
Spend some time diving into your finances to figure out how much you can afford to spend on a new or used car. Review the last few months of your income and expenses and see how much you can afford to budget, not only for the car payment but also for insurance, maintenance and more. It all adds up!
Repair Your Weak Credit Score
Disputing errors is one way to start working on your bad credit. But what if there are no errors, and your low credit score is just the result of a few financial mistakes you’ve made? Have no fear! Even in the worst cases, your credit can be repaired. The more mistakes you’ve made and the lower your score, the longer it’ll take. But for many, it can happen relatively quickly.
When you check out your credit report, you’ll see that certain factors affect your score more than others, such as missed payments or credit utilization. If you haven’t missed any payments, chances are you’re using too much of your credit monthly. This means that you are not paying off your balances. If you can pay extra on your balances and bring your utilization down, your score will jump substantially in no time!
It’s easier to improve your credit than you might think. Just make sure you know which factors are bringing your score down the most.
Check with Non-profit Agencies
One of the best ways to buy a car if you have bad credit is by checking with local non-profit agencies. Many agencies around the country have programs dedicated to helping low-income people get a car at little to no cost. Low-income families or individuals with bad credit are exactly the type of people that non-profits are designed to help.
If you can find a non-profit agency with a program designed to help people get affordable (or free) cars, chances are your credit won’t even matter. Keep in mind that the kinds of cars you will find from these agencies typically won’t be the nicest cars on the road, but they will get you from point A to point B.
Make a Bigger Down Payment
One of the best things you can do to make buying a car with bad credit as easy as possible is to make a bigger down payment. Heck, if you save up enough, you could just pay cash for your next car, and then your credit wouldn’t even matter at all! For most cars, that’s nearly impossible to do, but every dollar you can put toward a bigger down payment will help.
The larger your down payment, the smaller the loan needs to be, and the more likely you will be able to qualify despite a low credit score. A smaller loan may also help you lock in a better interest rate.
Lastly, a bigger down payment shows lenders that you can save money and that you’re not entirely dependent on their loan. This is a good indicator that you won’t default and that you’ll be able to make your payments on time, increasing your chances of getting a loan with better terms!
If you’re really worried about how much car you can afford and what kind of interest rates you qualify for, simply go out and get pre-approved for a loan. This means going to a lender and having them check your credit history and financial situation to determine how much they would be willing to loan you and at what interest rate.
With pre-approval, you’ll immediately know your ideal price range, and you can narrow your search to cars that are equal to or less than (preferably less than!) the pre-approved amount. The lender will provide you with a letter of pre-approval, which you can also use as a negotiating tool to get a better price when you go car shopping.
There’s really no reason not to get pre-approved. It will help you figure things out right away.
Watch Out for Predatory Loans & Scams
Predatory loans and predatory lenders are exactly what they sound like—they prey on people with poor credit who are desperate to purchase a car. A predatory lender knows that you’re desperate to buy a car and will offer you a loan even if other lenders would not. This loan might sound great, but when you get into the details, you will see how much interest they’re charging and how high your monthly payments will be.
Predatory loans often carry interest rates that are nearly impossible to stay ahead of, and you can forget about putting a dent in the overall balance. Standard credit cards often have interest rates of 20% or more, and predatory lenders often go a step further. It’s not unheard of to see interest rates of 30% or even 40% on a predatory loan, which are all but impossible to keep up with.
Conclusion & Recommendations
Buying a car with bad credit can be daunting. You know you’re going in at a disadvantage, but don’t feel overwhelmed. You should try to repair your credit first if you can wait a bit before buying a new car. This could alleviate all the pressure you’re feeling.
But if you need a car as soon as possible, you still have options. If you can afford it, put down a bigger down payment to lower your loan amount. You can also check with non-profit agencies to see if they can help you out. If not, be sure to shop around and find the best car and best rates possible. There will still be competition out there for your business.
No matter what, we wish you the best of luck and hope you love your new car!