Your credit rating is an important factor in approving an auto loan. Your credit card also affects the interest charges you pay when financing your purchase. Unfortunately, it is difficult to buy a car with bad credit, even if you have an income and a stable work experience. A history of late payments, high debts, bankruptcy, or forfeiture tells the lender that you may be in default on your loan and that lenders want to avoid the expensive process of recovering your vehicle.
Bad credit shouldn’t get in the way of your new pair of wheels, but you need to buy something different and be prepared for higher costs. Enter the process as best you can to avoid being exploited.
1. Check current interest rates before buying a bad credit car
You can search online for the latest average interest rates on car loans to better understand what the expected interest rates are. With a good loan, you would be entitled to an interest rate equal to or below the average. With bad credit, you generally have a higher interest rate, but you are skeptical about a loan rate that is more than double the average. Your loan rate affects not only your monthly payment but also the price of the car you can buy.
2. Make a larger down payment
Your credit history will limit the amount of auto loan you can get, and a high-interest rate will make the amount even lower. A deposit can offset interest, taxes, and charges, and expand the range of vehicles you can choose.
3. Know what you can afford
Avoid overestimating what you can afford to get into a better car. Instead, think about how much money you have left after paying the bills each month. This is the amount you can pay. Check your budget to see what you can really afford and stick to that amount, even if you’ve been approved for a loan with higher payments.
4. Get approval in advance.
You can buy more realistically if you have a pre-approved loan amount that you can work with. Talk to your bank or credit union about getting an auto loan and the pre-approval process. If you cannot get approval from your bank, your car dealership may contact you with a lender who cares for car buyers with bad credit.
5.Ignore the extras
If you buy a car with bad credit, you may not be approved for the high loan amount, which may mean that you have to sacrifice some of the features you want. Leather seats, a sunroof, and a premium speaker system may not be options. Because of the interest rate, you are already facing a higher loan payment. Do not enlarge by charging the latest features.
6. Watch out for fraud.
People with bad credit are the target of countless scams. Don’t be robbed no matter how much you want to be in a new car. Too often, these loans end badly for the car buyer and lead to another spot on an already tarnished credit balance. No matter how desperately looking for a new vehicle, take your time, learn all the facts, and make the most financially sound decision possible.
7. Contact non-profit organizations
Before taking out an expensive car loan, make sure your state has non-profit organizations that provide loans or vehicles to low-income consumers. In November 2019, read about statewide car rental programs. Unfortunately, there is no program in all states.
8. Be careful when buying here, pay here
Buy here, pay here, offer on-site car-free financing with lower credit ratings (sometimes no credit check), but they also have a reputation for being too expensive, selling poor quality vehicles, and take advantage of bad credit consumers. Ask a dealer for recommendations and check the value and history of the vehicle.
If you can, bring a friend of a purchasing mechanic to check the car and make sure it is in good condition.