Unless you’re rolling in dough and deciding between a new Bentley or Rolls Royce, most of us would agree that for the average person, car shopping ranks somewhere between going to the dentist and going to the DMV. It’s just not really all that fun to have to make a big money decision, especially if you’re under pressure from pushy salespeople while trying to weigh the pros and cons of each model. And if you have bad credit? Well then, car shopping can rapidly become one of the most stressful and demoralizing chores out there.
If you are one of the people trying to psych yourself up to go to car shopping even though your credit is hovering around poor/non-existent, try not to worry – there are still plenty of banks, financial institutions, and even dealerships that will work with you and your bad credit in order to help you lock down a car loan.
First though, make sure you are considering buying a used car for all the right reasons. If you want to dig yourself out of your bad credit situation, adding another loan is definitely not the right first step… rather, you want to put as much money as you can towards your debts each month until you see your credit score start to climb. If you’re not sure if your credit score is actually improving or not, you can sign up for free credit trackers online and watch your score rise each month – I recommend using Credit Karma, but there are several online credit trackers that you may want to explore. In fact, your credit card may even have a credit tracker option available to you online. Do a little research and see what credit tracking tools you may already have in your possession.
Using the free credit trackers is a great place to start motivating yourself to better your score, but you also want to be sure that your credit really is as bad as you believe and that it is that bad only because of your choices – not because of a mistake on the credit reports or even worse, fraudulent activity. Once a year you want to visit Experian, TransUnion and Equifax and request your free credit report. Carefully comb through these reports and look for any inconsistencies or errors – you might be surprised to find that there can be some pretty big mistakes on those reports. If you do find an error, be sure to contact the correct agency and ask them to fix the error immediately. By staying on top of your credit history, reports, and score, you’ll be taking the first step in repairing your damaged credit.
You might be thinking, okay, that’s all fine and good, but right now I still have lousy credit and I need a car loan. Well, here’s the good news: financing your used car could actually help you raise your poor credit score. How is that possible, you ask? It’s possible because every month when you repay your loan, that payment will get reported to the credit bureaus. A history of on-time, in-full payments can start to shift the needle from poor credit to good credit quicker than you may imagine. Of course, if you miss a payment or two (or default completely), then your credit is just going to get worse and worse, so do everything you can to avoid that happening. Take out the smallest loan you need and be absolutely diligent in paying it back on-time, every single month.
Sounds like the answer to your bad credit problem, right? Well, there’s some bad news, too. Because you have poor credit, any financial institution or dealer who takes the gamble on loaning you money is going to have to hedge their bets to protect themselves if you end up skipping payments. So, lenders protect themselves by offering loans at way, way higher interest rates than they offer to consumers with good credit. It’s a nasty Catch-22 and one you want to be fully educated and aware of before signing on the dotted line. Find out what your total payment will be including the potentially double-digit interest and be absolutely sure that you can meet that financial obligation each month.
What about the Buy Here, Pay Here dealerships that you see on TV ads? They are frequently loud, obnoxious, and prey on people just like you – those with poor or no credit who might be feeling desperate for wheels. You want to be very careful if you’re going down the Buy Here, Pay Here route – in fact, you’re going to want to be absolutely sure that you cannot get financing from any other source first. Try several banks, credit unions, and reputable online loan companies before hitting up your local Buy Here, Pay Here dealership. Why? Because the Buy Here, Pay Here dealerships are banking on the fact that you won’t actually be able to pay. Exorbitant interest rates will hold you back, and the Buy Here, Pay Here guys don’t mess around when it comes to repossession following a late or missed payment… in fact, most of the Buy Here, Pay Here dealerships even have tracking devices installed in your car so that if you miss a payment, they can be Johnny-on-the-Spot when it comes to scooping up your car from you. And they might even take your baby, too. Honestly, if your credit is in such a bad place that no one will finance you and you’re really considering Buy Here, Pay Here, I’m begging you to reconsider your options. Can you car-share with a friend? Use public transportation? Or if it’s safe enough, can you just walk to work? If you really don’t have another option and you’ve been turned down for financing from every other source possible, enter into a Buy Here, Pay Here contract with extreme caution.
Bad credit stinks. It holds you back from making the choices you want to make and can put you in precarious situations where you are at the mercy of places like Buy Here, Pay Here dealerships. But bad credit can also be overcome, sometimes simply by being responsible with your reasonable car loan.