Buying a car with bad credit can be challenging. But you’re not alone–many Americans have struggled with poor credit situations at one point or another.
There are ways around it, and there is light at the end of the tunnel.
There are things anyone who is buying a car with bad credit can do to clean up their credit a little bit, find a reasonable auto loan, and buy a good quality car.
Your credit history plays a major role in getting approved for a car loan as well as the interest cost you pay for financing your purchase.
Unfortunately, buying a car with bad credit is tough, even if you have the income and a stable job history.
A history of late payments, high debt, bankruptcy, or repossession is a sign to the lender that you’re at risk of defaulting on your loan payments.
Lenders want to avoid the expensive process of repossessing your vehicle.
Buying a Car With Bad Credit doesn’t have to stand in the way of your new set of wheels, but you’ll have to shop a little differently and be prepared for a higher cost.
Go into the process as informed as possible to avoid being taken advantage of
Determine how much you can spend.
Buying a car with bad credit It is important to plan ahead of time how much you can comfortably afford to pay for the car each month.
This will help you get the best deal while negotiating. Understand that if you have bad credit, you may have to pay more per month, so you may want to make sure that you can afford a new car.
First you will need to calculate your total monthly income. Subtract your current fixed expenses, such as rent, utilities, average, and insurance.
Try to estimate discretionary expenses too, such as how much you spend on entertainment.
After calculating this, take whatever income is left, and see how much of that you can pay each month for car payments.
Remember to include the cost of car insurance, fuel, and other vehicle maintenance into this cost.
Identify what you need the car for
How you will use the car will help you determine what car you need. This will make it easier find the right car for the right price. Consider your lifestyle and needs.
If you have a family with children, you may need a sedan with four doors.
A hatchback or station wagon may also be useful. If you are single, you may be able to get away with a cheaper two-door coupe.
You need to commute long distances, you should look for a car with more fuel-efficiency.
If you haul large loads, such as construction materials, you may need to look into getting a truck.
Work on your credit before going car shopping.
Before buying a Car With Bad Credit you need to check your credit report as soon as you start thinking about buying a new car, even if it’s months or years in advance.
By cleaning up your credit before applying for a loan, you improve your chances of being approved with good terms.
Cleaning up your credit includes paying off past-due accounts, disputing credit report errors, and adding positive information to your credit report.
Avoid additional bad credit items.
In the months leading up to your loan application, be on your best behavior. Buying a Car With Bad Credit make sure you pay everything on time.
Don’t take on any other major credit obligations, including new credit cards.
Potential red flags for an auto lender include late rent payments, charge-offs, debt collections, bankruptcy, tax liens, and lawsuit judgments.
Check current interest rates before buying a car with bad credit.
You can check online for the latest average auto loan rates to better understand what rate you should expect. With good credit, you would qualify for a rate at or below average.
With bad credit, you’ll typically have a higher interest rate, but be skeptical of any loan rate more than double the average.
Your loan rate will affect not only your monthly payment but also the price tag of the car you can purchase.
Skip the extras.
Buying a car with bad credit, you may not be approved for high loan amount, which may mean you have to sacrifice some of the features you want.
Leather seats, sunroof, and a premium speaker system may not be options when you’re trying to buy a car with bad credit.
You’re already facing a higher loan payment because of the interest rate. Don’t make it bigger by adding features to your car.
Check with nonprofit agencies.
Before you take on an expensive car loan, check to see if your state has any nonprofit agencies that provide loans or vehicles to low-income consumers
Tread carefully with buy here, pay here.
Buy here, pay here car lots offer on-site financing with less stringent credit qualifications (sometimes with no credit check), but they also have a reputation for being overpriced.
Selling poor-quality vehicles, and taking advantage of consumers with bad credit. Ask for recommendations for a dealership, and check the value of the vehicle and the vehicle history.
If you can, take a mechanic friend shopping with you to check out the car to make sure it’s in good condition.
Read all the paperwork.
Loan documents can be confusing, but your money and your credit are on the line, so it’s important to take time to understand the terms of the loan.
Make sure the paperwork matches what the dealer verbally agreed to. If you agree to the terms, sign the loan documents before you drive the car off the lot.
Some shady dealers let you drive away without signing, then call you back to sign papers with terms that are drastically different from those to which you originally agreed.
Don’t buy with the expectation of trading for a new vehicle in a couple of years.
One of the ways car salesmen get you into a car is to build up your hopes of trading in next year. Sounds like a great deal, but when you do this.
The balance of the old loan is added to the new loan. and your payments increase or your repayment period extends.
Don’t trade unless you improve your credit and can qualify to refinance at a lower interest rate.
Research which types of car you can afford.
Start researching cars in your budget. Identify the make (the company that makes the car), model, and year of each car that fits your budget and lifestyle.
Try to find different options so that you can look for the best deal.
Look for reliable makes and models, and read reviews online.
Compare cars so that you do not end up paying for expensive repairs or maintenance later on
Review used car prices in Blue Book. If you want a used car, start looking at car prices in the Blue Book.
The Blue Book will tell you how much particular makes, models, and years of cars are worth.
This will help you make an informed decision when you buy a car and prevent you from paying too much.
Create a budget.
Once you have identified what type of car you need and can afford, you can start saving up for it. Assume a maximum of 36 months of payments plus 20% down payment and closing costs.
Even before you find the right car, start putting aside money every month so that you can afford to buy the car when the time comes.
Save up cash for a down payment.
No matter what lender you end up using, paying the largest down payment you can afford is always smart.
Even small down payments–$500, for instance—can make a difference in the terms of the loan you end up with.
If you don’t need a car right away, it might be best to forgo getting a loan altogether, and just pay cash for an older car instead.
Ask family and friends for help.
Friends and family may be able to help you afford a new car. Perhaps they can loan you money to help with the down payment, or perhaps they would be willing to co-sign your loan.
Reach out to your family to see if there is anyone who is willing and able to help.
Remember that if a family member or friend co-signs and you default, they are responsible for the loan. This can severely damage your relationship with them.
Be prepared when you visit lenders.
When you’re visiting a lender, come with your documents in hand. Every lender needs to see several pay stubs, proof of identity (like a driver’s license), and proof of residency (like an electric bill in your name).
Although they might need additional documents, those are typical, and you’ll probably be able to get a good idea of what they’d lend you with those alone.
It’s not that any one of these things changes your credit score, how much you have to spend, or much of anything on your end. What it does change is how they look at you.
Someone who is prepared is more likely to get a fair deal than a person who seems hapless and disorganized.
Go to your local credit union.
Since credit unions are not-for-profit, they typically charge lower interest rates on loans than banks do. Although some credit unions lend to nonmembers, members typically get preferential treatment.
Since it’s easier than ever to become a member of a credit union, they should be your first option for loans.
Credit union typically have a lower interest rate (an average of 2% compared to 4% on auto loans), they will also be more likely to take your unique circumstances into account, and see you as a more than a credit score.
Of course, there is a trade-off. Since credit unions aren’t trying to make a profit, they charge lower rates. Since they charge lower rates, their profit margins aren’t as high.
So they do have to be cautious about lending to too many debtors in the subprime category.
So think about it this way: if your credit is mediocre to poor, you might have a shot at getting a loan at a credit union. If it’s through the floor, you’re going to struggle.
Talk to a local bank.
Most local banks are not going to be able to match the interest rate you’ll find at credit union, but that doesn’t mean they won’t have their advantages.
A local bank is likely to be able to offer a few things a larger bank can’t. For example,
Fewer fees and lower interest rates than the larger banks. Larger banks will have technological and logistical advantages over smaller community banks and credit unions.
The network of ATM’s, cutting edge apps, and a branch on every block all cost money.
A local bank is less likely to be as rigid as a national bank. While they probably won’t be as flexible as a credit union.
They will in fact be more able and willing to lend to a person rather than a credit score.
A local bank is also just a bit more likely to write a smaller loan for an older car than a large bank would be.
Which can really be ideal for someone who’s looking to minimize their car payment.
You can very well find some good deals, but you might end up getting fleeced as well. This is one area where you have to do your homework even more than usual.
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There’s no one place you can go to get reputable, unbiased reviews of every single online lender in one place. Before you apply, you’re just going to have to investigate their reviews and reputation.
A good place to start is the Better Business Bureau, but that’s not going to give detailed information about the bank as a lender, but rather as a business in general.
If an online lender has anything other than an A rating from the BBB, look elsewhere.
The Consumer Financial Protection Bureau would be another good resource for research.
That agency regulates financial entities as they relate to the public, so you could find out if a lender was under investigation or had a large number of complaints.
Watch out for scams.
People buying a car with bad credit are the target of countless scams. Don’t fall victim to predatory loans, no matter how much you want to be in a new car.
Too often these loans end up poorly for the car buyer and result in yet another blemish on an already tarnished credit record.
No matter how desperate you are for a new vehicle, take your time, get all the facts, and make the most financially sound decision you can.
Buying a car with bad credit is very hassle free if you follow all the guidelines in this article. You don’t need to break a bank before you can buy a car.
Although you may have to go for a cheaper car because of your bad credit but what matters most is that you can buy a car with your bad credit.