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How do I Buy a Car with Bad Credit?
Malcolm Tatum
Malcolm Tatum
Attempting to buy a car with bad credit can be a daunting task. Fortunately, there are lenders who are willing to work with people who have gone through a rough time and are in the process of rebuilding their damaged credit rating. If you find yourself with a need to get a new car and your credit has taken a beating the last few years, here are some tips to help you buy a car if you have bad credit.
One of the first things you will have to accept is that you are in no position to command the best interest rates for any car loan you attempt to secure. Depending on how much damage was done to your credit, there is a good chance you will have to go for a high risk loan. This type of loan is extended by a creditor who will charge a higher rate of interest in return for taking a chance on someone with less than perfect credit. With that in mind, you still want to get the best interest rate possible even when you buy a car with bad credit.
While you may qualify for high risk car loans on new cars, there is a better chance that you will do better if you consider good quality used cars. Lots where your bad credit is not likely to have the salesperson often post either the full purchase price or at least the amount of the down payment on the windshield of the cars. Look closely for lots that do their own financing, especially those that are willing to work out weekly or monthly payment terms based on how often your receive wages or salary from your job. Buying a car with this type of used car loan will cost a little more, but if obtaining reliable transportation with affordable payments is your focus right now, used car loans of this type may be your best bet.
Keep in mind that these locally owned lots may also be willing to negotiate a little if business has been slow. For example, you may be able to work with them to reduce the amount of the down payment slightly. That can be a big help if you not only have to buy a car with bad credit, but also are limited on how much of a down payment you can make. Remember you still have to buy a tag and obtain insurance for the vehicle, so that discount on the down payment may be the way you cover those expenses.
One thing to keep in mind is that as your credit rating begins to improve, you may be able to refinance the high risk loan for something with lower interest rates. While this is seldom possible with the dealer who allowed you to buy a car with bad credit, other lenders may review your recent credit history toe indicate you are worth the risk. Get the best deal you can at present, but never stop looking for better terms as you regain control of your finances.
Malcolm Tatum
After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including WiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.
Learn more...
Malcolm Tatum
After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including WiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.
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![Lenders may require a larger down payment for a used car loan.]()
By: KzenonLenders may require a larger down payment for a used car loan. -
![Car shoppers with bad credit should look for dealers that do their own financing.]()
By: PhrysphotosCar shoppers with bad credit should look for dealers that do their own financing. -
![People with a bad credit history often pay higher interest rates in order to borrow money.]()
By: karam miriPeople with a bad credit history often pay higher interest rates in order to borrow money. -
![The interest rates for car loans vary substantially depending on the borrower's credit record.]()
By: Monkey BusinessThe interest rates for car loans vary substantially depending on the borrower's credit record. -
![There are a number of ways that people with bad credit can finance a new or used car.]()
By: DeklofenakThere are a number of ways that people with bad credit can finance a new or used car. -
![A person with bad credit may decide to purchase a used car from a private seller.]()
By: KurhanA person with bad credit may decide to purchase a used car from a private seller.
Discussion Comments
Do not buy from a buy here pay here lot. They are unbelievable. A car worth $3k will be $13k with a sky high percentage rate on the loan so you will end up paying 20k plus for a car worth $3k. The way they work is the down payment is what they paid for the car. They only finance the profit!
There are a lot of ways to buy a car now with poor credit. You just have to be careful about the interest rates so you don't get cheated.
Great article! Thank you. It was encouraging, as well as a little bit heartbreaking. I really was set to get a new car at this point, but in light of this article I'm seeing that at this point it might be in my best interest to go with a loan towards a used car.
This is a great article as purchasing a new vehicle was a thorn in my side for a while. I checked out some credit sites online and found them to be very helpful. Thanks!
I work in the automobile industry at a large-ticket dealer. The best advice that can be given to anyone with bad credit is first and foremost: Never, ever buy from buy here, pay here lots, as these are by far the most shady lots in the business, and those of us fortunate enough to work at a retail dealer have zero respect for these lots. They barely skate above what is legal and certainly have very few scruples. Avoid them like the plague.
Some lots will sell you a car we dealers would wholesale (given their 100k-plus miles and questionable condition) at a horrifying interest rate. They buy cars with obnoxiously high miles for around their worth, generally $2k-$3k, and sell them to desperate customers for around $10k-1$3k. You must make either weekly or bi-weekly payments that will stretch you out pretty badly, and they do have a penchant and reputation for harassing their customers. One could not in good conscience consider these fraudsters legit. Frankly, many of us who work at legitimate store balk and cringe at such practices and agree these lots should not be legal in any way, shape or form. Think of it as legalized thievery: shameful at best and beneath reproach.
What you need to do is to save for a large down payment, secure a co-signer, or both, and several sub prime lenders would be more than happy to buy the loan. Capital on hand basically shows the banks that you are willing to/have the ability to pay. Look at used vehicles, particularly those around $10k, and be prepared to put about $2-3k down on it. Be anal about making your payments on time for roughly one year, then try to either re-finance through a bank at a lower rate, or see if your credit is then good enough to upgrade to a new automobile.
Again, never, ever give your business and hard earned dollars to a buy here, pay here lot, as nothing about buying from them will benefit you in any way. They do not deserve your consideration nor your business.
what is considered "terribly high" interest rates?
I've noticed that several local dealers in my city are willing to give in-house loans as long as you have consistent income. Many of them simply require a few pay check stubs and a down payment as low as $100.
From what I have seen, you won't get as good a selection to choose from at these smaller lots, but if you really need a car, then any used car should do. Just don't expect to get a fabulous deal.
@calabama71: I have had to do the same thing. When having to purchase a car with a company that does in-house financing, it is important to make sure that they report to the credit bureau. Many of them do not and the payments that you have made do not show up on your credit report.
After my divorce, my credit became less than perfect. I tried to buy a car but no one would finance me. I had to go to a car lot that offered in-house financing. The interest rate was terribly high. After I paid on it for a year, I was able to finance the balance through a bank.
Unfortunately, it is very difficult to buy a car if your credit is less than perfect. Cash, of course, is an option. Not many of us have that kind of money laying around, though.
The best thing to do is to try to save up enough money to pay a large down payment. Many financial institutions will finance an automobile that way. Your down payment secures the loan.
Another option is to try to find a co-signer, preferably with good credit. After you make the payments for a while, the bank may consider letting the loan be put in your name.
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