Buying A Car With Bad Credit: What You Need To Know

If you have bad credit, the gates to car ownership aren't completely closed. However, there will be a few extra obstacles thrown your way.

Bad credit slows approval and increases annual percentage rate (APR) for prospective buyers. This costs you two things: time spent trying to get approved and thousands of dollars more in accumulated interest. Here are some strategies to consider when buying a car with bad credit history.

Check Your Credit Report

If you have bad credit, you should start your journey toward buying a car by obtaining copies of your credit report. This should be done at least a few weeks prior to car shopping. It’s important to periodically examine your annual reports thoroughly to ensure there are no errors and to see why your score is low. If you notice any glaring mistakes in your reports, immediately report them to the credit bureaus.

After any errors have been corrected, you should obtain a fresh copy of your credit report. Go over it and see whether your score has improved; if it has, it will make things easier when you’re ready to go car shopping.

Work On Fixing Your Credit

Following with the previous tip, you should work on your credit before you go car shopping. The better your score, the better your chances will be at securing a good loan to buy a car. It will also enable you to choose a better term loan.

Find A Dealer Willing To Work With You

If you're in a dire situation and need a car quickly, it’s imperative you find a dealer who’s willing to work with you. If your credit score is somewhere within the 500 to 600 range or below, you can search for a dealership that will offer you a car loan that is fair in spite of your credit score.

But, beware! Some dealerships exploit buyers with bad credit, forcing them into loan terms that can cause missed payments and, ultimately, car repossession. Make sure you understand the signs of predatory auto finance going into the dealership.

However, there are some that have experience working with people with less than stellar credit, have a good working relationship with at least a dozen lenders, and don't use predatory practices.

Look Into Nonprofit Lenders

Looking into nonprofit lenders that offer personal loans can help you to buy a car when you have bad credit. Some offer loans to buyers who shop around and select a dealership that has a high satisfaction rating among customers. Research a few nonprofit lenders located within your state to determine the best option for you.

Make A Bigger Down Payment

Essentially, your credit will determine the amount for which you can qualify with your car loan. With bad credit, you can expect your interest rate to be higher. Therefore, a larger payment can help to offset the interest, fees, and taxes and increase your choices of cars.

Get Pre-Approved

Go to your bank or credit union and talk to a representative about getting a car loan to learn about the pre-approval process. It can help you when you begin shopping for a car. When you're pre-approved, your credit score, credit report, income and expenses are analyzed. This analysis determines whether you can qualify for a loan and how much you can receive for the loan. This tip may also help you to get a much fairer rate on your car insurance.

Consider A Cosigner

In some cases getting a cosigner on a car loan it might be your best option. It can even help you to qualify for a loan with a lower interest rate. However, it’s important for both you and a cosigner to know that the cosigner will be required to make payments toward the car loan if you default. If you are able to make the payments yourself, however, having a cosigner is a great way to not only be able to buy a car but improve your credit as well.