Buying a car when you have bad credit can be challenging, but bad credit doesn't have to stop you from getting the vehicle you need. If you're struggling with credit issues and need auto financing, The Car Connection is here to help you experience a smooth car buying journey with some valuable tips.
6 Tips for Buying a Car with Bad Credit
As soon as you start to consider financing a vehicle, there are a few things you can do to begin the bad credit car buying process. Here are six tips to get you going:
- Get your credit reports – This is something you should do regularly, regardless of whether you're buying a vehicle or not. Being aware of what's listed on your credit reports and monitoring your credit score are great ways to begin turning around poor credit. After all, you can't fix what you don't know is broken. Once you get your credit reports, check them over carefully for errors and dispute any incorrect negative items you find to the reporting credit bureau. Fixing errors on your credit reports can improve your score without much effort on your part. Another way to use your credit reports to your advantage is to pay attention to any accounts which are listed as past due. Cleaning things up by catching up on past due payments also improves your credit and adds positive payment history to your credit reports.
- Do your research – Since you already checked your credit, you can now begin researching the types of interest rates you might be eligible for. Generally, the lower the credit score, the higher the interest rate. While the rate you get might not be exactly what you see online, you can use online tools and calculators to estimate the loan size you could get as well. This is also an excellent time to determine exactly what you need in a car. Remember, when you have bad credit, it's a good idea to look for an affordable, reliable vehicle that holds its value and meets your needs – even if it's not the color or trim level you really want. Successfully completing a bad credit car loan can help you improve your credit, so that next time around you may be eligible to get the vehicle you want, not just the one you need.
- Know your budget – Overspending can be a real issue when it comes to bad credit car buying. This can happen easily when you lose sight of the big picture. If you begin shopping for an auto loan and find that you have to stretch your loan term to 72, 84, or 96 months just to afford the monthly payment, you're overspending. Though it's not unheard of for loans today to reach the seven- or eight-year mark, it's not a good idea with the high interest rates poor credit borrowers are charged. The longer you take to pay off your loan, the more money you spend in interest charges. To help stay on budget, you can calculate your debt to income (DTI) and payment to income (PTI) ratios. These are two calculations that are used by lenders to ensure you have enough available income for a car loan. Your DTI lets you see how much income you have available, and your PTI can help you find a comfortable payment range.
- Save for a down payment – As soon as you know you need to finance a vehicle with bad credit, you should start saving for a down payment. Though a down payment isn't always needed with good credit, it's usually a requirement for a bad credit auto loan. The down payment you're asked to provide varies by lender – it could be as little as 10% of the car's selling price or as much as 20%. You should aim to save as much as you can, but subprime lenders that work with bad credit borrowers typically require $1,000 down or 10% of the vehicle’s price, whichever is less.
- Try for pre-approval – When you have bad credit, pre-approval through a direct lender is generally harder to come by, but this doesn't mean you shouldn't try. If you have a good relationship with your bank or credit union, you should start there. Getting pre-approved by a bank or a credit union usually means better rates and terms than financing through an indirect lender. If you're able to get pre-approved, you can skip the haggling at the dealership and get right down to the business of picking out a car because you go in knowing how much you can spend.
- Save buy here pay here (BHPH) lots for last – Even though it may be appealing to go to a dealer that promises that you can sign and drive in one day with no credit check, you should know what you're getting into before you jump right into buying from a buy here pay here dealership. Though it's true that not all of these dealers check your credit and instead rely on your income and down payment for approval, it's likely your interest rate and down payment would be much higher than you're likely to see with a subprime lender through a special finance dealership. You should also be aware that BHPH lots only carry used vehicles, which can make it harder to find the type of car you’re looking for.
The Bottom Line
When you're credit-challenged and ready to get auto financing, it can be hard to know where to begin. If you've followed our tips and are ready to look for a bad credit car loan, let The Car Connection help you get started. Not only can you research vehicles with our new and used car sections, we can also point you toward a special finance dealer that has the lending resources you need to get started.
Skip the hassle of driving all over town looking for a dealership that can help. Simply fill out our fast, free, and easy online auto loan request form, and we'll work to get you connected to a local dealer that has the subprime lenders you're looking for.