The average credit score in the United States in 675. This would be considered a ‘good’ credit score.
However, any score lower than that could be considered ‘fair’ and then plummet to poor or exceptionally poor. Sometimes it’s qualified as ‘bad’ depending on the company.
A poor or bad credit score can make life a little more challenging. It’s harder to acquire a loan, buy a home, or even a car with bad credit. Is it even possible to buy a car with bad credit?
The short answer is, yes! But what are the details of that yes? Let’s dive in a see how you can get a car with bad credit.
Buy A Car With Bad Credit: Hard, But Not Impossible
Purchasing a car, even with low credit is doable, though no doubt challenging. Here are a few key ideas to keep in mind.
1. Comb Through Your Credit Score
Before you visit any dealers, you need to have a solid grasp on your credit score and also your credit report. You can acquire your credit report for free and overlook it to make sure there’s no fraudulent activity and better gage reasons where you could improve your credit. If you spot inaccuracies on your report, it could be contributing to your low score.
2. Clean Up Your Credit
Some people need a car right away, but if you don’t, use this time to address those red marks on your credit report. For example, paying your bills on time has a significant impact on your credit score. Making on-time payments can boost your credit score and signals to lenders that you’re trustworthy.
If you’re not in a hurry to buy a car, take some time to evaluate your score and report. It could pay off especially when it comes to ease of securing a loan and the loan rate.
3. Budget, Budget, Budget
Often, low credit scores are a result of a chain reaction in your financial life. Not sticking to a budget, racking up debt, and the inability to pay it affects your score dramatically.
It can be tempting to buy the fanciest car possible but doing so could leave you with a large monthly payment. As a result, if the car payment is out of your budget, your payments could be late. This further destroys your credit.
Go over your monthly budget and bills to determine how much you can comfortably afford before you go car shopping. Researching current loan rates could help you negotiate when it comes time to buy.
4. Research Lenders
Some lenders are very restrictive about who they lend to. It’s recommended that you shop around and research lenders before applying for any loan, especially with bad credit.
Reaching out to your local credit union to pre-apply can make the application process smoother, as credit unions are more friendly to people with bad credit. Take into consideration lenders who work solely with those who have bad credit.
Avoid applying to several different lenders as this creates a hard inquiry on your credit report. A hard inquiry lets lenders know you’re interested in acquiring debt and can lower your score. Knowing this is one reason why researching lenders first are vital.
5. Inspect Your Terms
If you’re approved for a loan, pay attention to more than just the monthly payment, even though that’s the deciding factor for most buyers. A monthly payment amount is one part of your agreement, yet you could be paying more over the life of the loan if your payment is small. You might think you’re getting a good deal (at first), but over time you’re paying more than you want.
5. Save for A Down payment
Stock away as much money as you can to use as a down payment if you have plenty of time before you need a vehicle. A down payment shows lenders or dealers that you’re serious about purchasing a car and making the payments. In some cases, it can even lower your interest rate and also your monthly payments.
If you’re the overachieving type, save up your money and pay for the car in cash. Doing this avoids having to work with lenders, and you don’t want to worry about a monthly payment.
6. Think About A Co-Signer
A co-signer is a person with good credit who signs the loan with you. This seems less risky to lenders because they have someone who will pay the loan if you cannot. Bringing along a co-signer increases your chances of getting loan approval.
There are some risks that accompany having a co-signer. This debt also shows up on their credit report, and their score takes a hit if you cannot make payments on time. The relationship between you and your co-signer could be severed or damaged if you default on your payment.
7. Shop Where You Can Finance
Some dealerships offer their financing which could work in your favor. In this case, you avoid having to apply to a third-party lender. Certain dealerships work primarily with those that have low credit.
It’s important to note that it’s possible these dealer-lenders offer interest rates that are sky high and could include repossession in their terms if you cannot make the payments. Usually, they do not report to the credit bureau, so using these loans to build your credit is out of the question.