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How Can I Finance a Car with Bad Credit?

Even with really bad credit, there are still lenders who will give you a loan. There are a few things you can do in preparation, however, that will drastically help your case.

Work on your credit: This would include paying off past-due accounts (if possible), disputing any credit report errors. 

Avoid bad patterns: Make sure you’re paying bills on time; late payments, bankruptcy and any tax issues are big red flags for lenders. If avoidable, don’t make any other major purchases or open new credit cards. 

Check current rates: Do some research online and find out what the current average auto loan rates are so you’re not caught off guard. With bad credit, it’s likely you’re rate will be higher, but it shouldn’t be more than double the average. 

Know your limits: Don’t overshoot how much you can realistically afford to spend on a vehicle just because you want a nicer ride. Make a budget, including all your fixed costs and anything else you typically spend in a month, and see what you have left over. That will give you the best idea of what you can truly afford in terms of a car payment. 

Limit add-ons: When buying on a budget, you may have to sacrifice some of your wants. Those heated seats, sunroof and souped-up sound system will have to wait until you can feasibly afford them. 

Amp up your down payment: Put down as much money as possible; the more you can pay off the top, the less you’ll end up paying in interest down the line. 

Read everything carefully: Make sure your paperwork matches up with what your dealer told you when you test drove the car, both in terms of car specs and pricing/financing. If you agree, sign that paperwork before you drive off the lot. 

Be on high alert: People with low or bad credit are, unfortunately, targets for scams. Take your time, do your research and work with reputable lenders and dealerships. 

Don’t trade up: If you’ve recently bought a vehicle and are already thinking of trading up, it’s not a great idea if your credit is still poor. When you upgrade, the balance of your old loan gets added to the new loan, so your payments will either go through the roof, or your payment period will extend by a mile.

Buying a Car When You Have Bad Credit

It may seem completely out of reach, but you can buy a car when you have horrible credit. Here are some steps you can take to make that happen.

Saving up: Cars are a huge expense for most people; the down payment, insurance, gas and maintenance really adds up. So, the best thing you can do is to start putting away any extra money you can in preparation for that purchase.  

Get a credit check and know your score: It’s best to do this a few months ahead of time, so there will be an opportunity to fix any issues and deal with any outstanding debts.

Prepare financial documents: Getting your financial paperwork in order will make things easier when your lender eventually asks to see it. Having everything ready to go will streamline the process.

Research lenders and dealerships: Get online and do some digging; not every lender or dealership will be the right fit for you and your financial situation.

Get pre-approved: Head to your chosen lender ahead of time and see if you can get pre-approved for a loan. 

Application process: Once you’ve found the lender you’re interested in, you can fill out an application. This process should be free; if you are asked to pay for your application, it’s best to just walk away.

Shop around: Take your time and view lots of different vehicles. The first one isn’t always the right one.

Shop smart: Target cheaper vehicles that will require smaller loans for purchase.

Bring a friend: As they say, two minds are better than one, so it’s good to bring someone you trust (even better if they know anything about cars) with you to help lessen the imitation and overwhelming feeling that can sometimes come along with large purchases such as a vehicle.

Know your terms: Be clear with your dealership about what the terms of the loan and/or purchase are, and then get it in writing.

Keep up with payments: The best thing you can do for your credit is to keep up with the agreed-upon payments. If you begin to feel as though the payments are not sustainable for you, contact your lender immediately and they will likely be open to negotiating further.