Buying a Car with Bad Credit

As a consumer, you’re ultimately in control of whether you get approved for an auto loan. However, with poor credit history, the task can be challenging. Auto lending is an industry built on trust. Lenders generally trust borrowers with excellent credit to back their loans on time. They don’t have as much confidence in borrowers with bad credit, so they price the additional risks into loans by charging significantly higher interest rates. Borrowers with poor credit may also find loan terms that are more restrictive than those for buyers with better credit scores. You may need to shift how you think about shopping for a vehicle and be honest about what you need in a car so that you don’t fall into heavily-priced traps. Here are five things you can do to help you finance a car if you don’t have good credit.


Fix Your Credit Report

Before applying for an auto loan, it’s essential to check both your credit score and credit report. Each of the three major credit-reporting agencies will provide you with one free credit report per year. If you find any errors on your credit report, try getting them fixed as soon as possible. Fixing any discrepancies in your credit report could increase your credit score and credit trustworthiness and help you secure a more competitive rate for a loan.

Try to Get Pre-Approved

Bad credit can make shopping for a car exasperating, especially when you find what you want and then lenders are simply unwilling to extend you a loan. By talking to your bank or credit union, you may be able to get pre-approved for a specified amount. This will help you know your budget without the uncertainty of being rejected due to your credit.


Make a Larger Down Payment

Unfortunately, having poor credit means that the car loan amount available to you will likely be limited. Additionally, you will most likely face a higher interest rate if you’re approved. However, if you can afford to make a larger down payment, you could lower the loan amount and possibly negotiate a lower rate as a result.

Skip the Extra Features

If you’re buying a car with bad credit, you have to be realistic about the features you want versus those you need. By reducing the number of extra features—those that aren’t absolutely essential (i.e., leather seating; high-quality sound system, sport rims, etc.)—you could help lower the car’s total price and, likewise, the loan needed to pay for it. Reducing the amount of the loan you request will not only make it easier to repay on time, but it might also increase your likelihood of approval.

Apply for Assistance

There may be nonprofit agencies or government programs that provide auto loans to low-income consumers. These vary depending on your state, so it’s best to check to see what may be available. For example, in California, the statewide Clean Vehicle Assistance Program provides personal grants and affordable financing to help lower-income Californians purchase a used or new conventional hybrid, plug-in hybrid, or battery-electric car.

Keep these tips in mind if you’re looking to purchase a car and your credit score isn’t as high as it could be. Although challenging, finding a loan with bad credit is not impossible—it just may take more effort and planning.

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