A low credit score can make big purchases like buying a car difficult and stressful. Many banks won’t give loans to people with bad credit. Unfortunately, having a loan and making payments on time is one of the best ways to raise a bad credit score. On top of that, there are some situations where owning your own vehicle is the only feasible way to get to your job.
Banks aren’t the only option, though. Some lenders and dealerships offer bad credit car loans to give people with low credit scores a way to afford a car. Like any financial decision, it’s best to have a good understanding of these loans before you commit. So let’s look at what you need to know about buying a car if you have bad credit.
Improve Your Credit if You Can
If you can get a few more miles out of your current car or rely on public transit for a bit longer, then it might be worth trying to improve your credit score before buying your next car. There are plenty of ways to check your credit score for free, and most of the services that let you do this also break down what factors are bringing your score down and what you can do to improve them. Whether you need to make more on-time payments on a current loan or wait for a hard inquiry to no longer appear on your report, most of these methods take some time. On the other hand, things like paying off a credit card balance can be done quickly if you have sufficient funds.
If you’re not sure how to go about raising your credit score, you can always ask for help. Friends or family members who have good credit might be able to give you some advice. You might also consider getting credit counselling, though you should always make sure to go through an agency that is legitimate and has a good reputation.
Know Your Budget
Finding a car you can afford is important, no matter what your credit score is. But if you have bad credit, it’s especially vital not to overspend. Paying off an auto loan can help improve your credit score, but only if you can afford the monthly payments. Think about what features you actually need in a car, and don’t be afraid to opt for a lower trim level or less luxurious brand in order to stay under budget.
Consider a Used Car
One easy way to find a good deal on a vehicle is to stick to used models. Pre-owned cars tend to be much more affordable than their new counterparts, and you might find that you don’t have to sacrifice much in terms of quality. Many safety and convenience features, like driver-assist technology and infotainment systems, have been around for several years now. Even if you’re looking for a car with some tech features, you should be able to find plenty of options on a used car lot.
Get a Car You Can Rely On
While you want to make sure you come in under budget, cheaper isn’t always better. If a car has a slightly lower sticker price but will require many expensive repairs in order to stay on the road, it’s not really a good deal. In order to get the best value for your purchase, stick to reliable models that will stay in good shape for years to come. Brands like Honda, Toyota, and Mazda are known for making cars that drivers can count on for a long time. Another plus side to reliable vehicles is that they tend to retain their value well, so you can use that equity to get a better deal on your next car.
Save Up for a Down Payment
The higher the down payment you’re able to make, the lower your monthly payments will be going forward. This is another way to make sure that you’ll be able to make all your loan payments in full and on time. While you might be able to find a no-money-down option, getting a loan that works for you will be much simpler if you’re able to provide a sizable down payment.
Find a Cosigner if You Can
If you have a family member or close friend who has a good credit score and is willing to help you out, you can have them cosign the loan. This means they’ll be sharing responsibility for the loan, which can raise your chance of getting approved and lower your interest rate. If you go this route, be aware that any late or missed payments will affect not only your credit score but your cosigner’s as well. Make sure your cosigner is fully aware of what they’re signing up for, and take extra care to repay the loan without incurring any penalties.
Watch Out for High Interest Rates
If you have bad credit, you’re almost certainly going to have to pay a higher interest rate than someone with good credit. But some bad credit car loans are better than others. Be aware that so-called “Buy Here Pay Here” plans are often exploitative, with outrageously high interest rates that can make your financial situation even worse. Keep an eye out for bad deals like this and avoid them at all costs.
Look for Lenders That Cater to Your Needs
It may seem like you’re stuck between the rock of banks who won’t lend to you at all and the hard place of loan sharks with exploitative interest rates. But there is a middle ground. Some lenders and dealerships have specialized programs to help people with bad credit afford a car loan. This gives you a chance to talk through your options with someone who has experience walking people in your shoes through this exact process.
Have Your Paperwork in Order
Instead of relying on your credit score to see whether you’re able to pay off your loan, lenders specializing in bad credit loans will often look at your income instead. This means you’ll need to be able to show proof of employment and provide bank statements that reflect your current income. Make sure to have these documents ready to show your potential lender.
You Can Improve Your Credit Score!
Having bad credit can feel like a mark of shame, but remember that financial trouble can happen to anyone. Beating yourself up is only going to be a drain on your mental health and make the whole situation worse, so try to practice self-care and keep a positive attitude as much as possible. Having a support system isn’t just about having people in your life who can offer financial advice or cosign a loan; it’s also about having a community that will uplift you and not judge your character based on your credit score.
That positive attitude can help give you the inspiration you need to find the right car for you, save for a down payment, sort out the paperwork, and work to read and understand the loan agreement and make sure it works for you. It bears repeating that once you get a loan, you should make all your payments in full and on time. Do this for long enough, and you can improve your credit score and have a much easier experience the next time you’re ready to buy a car.