Man in a suit handing a woman car keys as she stands behind the car door

A Guide to Buying a New Car With Bad Credit; Yes, It’s Possible

When looking around for bad credit car loans, it’s important to know that it’s possible to get bad credit auto financing for a new car. However, you aren’t likely to find this kind of offer at a bank or credit union, and obviously you won’t be going to a used car dealer or a buy here, pay here lot — since they only sell used cars. What does that leave? A new car dealership. Believe it or not, they want your business; you’ll find out why in a second. But in order to get a new car from them, there are a few things you need to do.

You need to start looking at your credit report and attempt to mend any risk factors. Then, when you’ve decided on a dealership, you need to bring proof that you’re a good credit risk. Finally, as long as you shop within your price range, you’ll be able to drive an affordable new car, and use the loan payments to build your credit back up again.


Important to Know: New Car Dealers Want your Business

A happy couple receiving their new car

I bet you’re wondering why a new car dealership would want to finance a bad credit consumer. Well, there are a few reasons for that. The first and most obvious reason is that it gets them more money. Also, from the dealership’s perspective, a new car has much more value than a used car, which means they have more collateral to reclaim if you fail to make payments. So in a way, it actually provides a sense of added security for them. Plus, it also assures the lender that you will be able to focus on strictly putting money towards paying off the loan, as opposed to having to worry about paying for any repairs that will inevitably pop up on a used car. After all, it’s not like they are trying to get you; they want to help you and they want your business.

Finally, it helps drive even more business for them. If you tell your friends about a dealership that took you on — even though you had bad credit — it will not only get their name out there, but your friends are likely to go there as well. It shows that the dealership is honest and willing to assist all kinds of customers, no matter their credit situations. In turn, your friends will likely feel safe going there. Regardless if you have bad credit or not, that’s a beneficial way for a dealership to get more business — by taking on clients with varied credit scores.

If everything is done right, the deal works out for everyone. You get a new car and a dealership you can trust to do any necessary repairs and the dealership profits off a sale and potentially gets more clients via your referrals.


Look at your Credit Report and Mend Risk Factors

A credit report with magnifying glass

Now that you see why a new car dealer would take you on, and I’ve instilled some hope, it’s important that you don’t go jumping at the first dealership you see.

First, you need to plan ahead. Calculate how much car you can afford, and what you will be able to pay monthly without stretching yourself too thin. Then, it’s time to look at your credit report and get your score.

Upon viewing your credit report, pay attention to any risk factors that pop up, also known as “black marks.” These are the primary reasons your credit score is so low, so it’s time to see what you can do about mending them.

Now, bigger black marks like foreclosure, defaulting on student loans, or bankruptcy can’t be repaired. The only way to mitigate their impact is through good financial habits over time. But, things like late credit card payments, or maybe even missing credit card payments, might be fixable. Call your credit card company and see if there is anything you can do to remove those marks.

Getting these black marks removed will increase your credit score, and therefore help you get a car loan with a more forgiving interest rate. If possible, you want to plan in advance before even considering a purchase. Start working on your boosting your credit score for a few months and then go looking for a car loan.

While your score still might not be stellar, it will likely show improvement, which demonstrates to the dealership that you are a good credit risk.


Prove That You’re a “Good Credit Risk”

A woman shaking hands with her car salesman

Along with proving that you’ve been working towards building your credit score back up with positive financial habits, you also want to make sure you bring proof that you are a good credit risk. This is basically showing the dealership that even though you do have bad credit, you are still going to be responsible enough to pay off the car loan they provide for you. In the end, this is still a business. So, even if they do want to take on people with bad credit, they still need to see that you are responsible enough to handle it.

Other proof that you are a good credit risk could be the most recent pay stub from your job, utility bill, driver license, and three personal references vouching for your responsible nature. With these documents in hand when you talk to the dealership about financing, you can firmly establish that you are serious about paying off your car loan. Plus, those references are also a way for the dealership to contact friends or family if you stop paying your loans.

I wouldn’t suggest getting a co-signer unless you are absolutely sure you can afford the payments or else you’ll risk tanking the co-signer’s score as well. But, having those references from friends can be a big help.


Shop Within Your Price Range

A smiling man handing over the keys to a new car

Even though the dealership is going to tell you what you can afford to drive, you still need to be smart and stay within your price range even after you’ve made your purchase. Here’s a scenario to illustrate what I’m talking about: you’re one year into paying off your car loan and everything has been going great. The dealership contacts you, and says you are able to trade-up to a better car since you have been making payments on time, and your credit is improving.

Great! Building your credit back up is a good thing. That trade up isn’t though. Avoid taking this offer because it will only add the remaining loan you are currently paying off to this new one. So, even if you have (in theory) a lower interest rate because your credit score improved, you will be paying off the first loan along with the new one, which won’t save you any money.

If anything, work with the lender on re-financing your current loan for a better interest rate in order to pay that one off faster. Then, you can move into a better car when that loan is paid off. It’s the responsible thing to do, which, in a nutshell, is what it boils down to getting a new car with bad credit.

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