Tips for Buying a Car With Bad Credit
- Bad credit doesn’t have to stand in the way of your new set of wheels, but you’ll have to shop a little differently and be prepared.
- Your credit history is a big factor in getting approved for a car loan. Not only that, your credit card will affect the interest cost you pay financing your purchase.
Identify items that are hurting your credit score
- Cleaning up your credit before applying for a loan improve your chances of being approved with good terms, according to Latoya Irby for The Balance.
Pay everything on time
- Potential red flags for an auto lender include late rent payments, charge-offs, debt collections, bankruptcy, tax liens, and lawsuit judgments so avoid additional bad credit items.
Check your budget
- Avoid overestimating what you can afford so that you can get into a better car. Instead, consider how much extra money you have left over after paying bills each month. That’s the amount you’re able to afford.
Opt for a shorter loan term
- You might have lower monthly payments with a five-year versus a three-year loan, but pay attention to the interest rate. Generally, interest rates are lower for short-term loans, meaning you pay less for your car overall. Plus, you pay off your car loan earlier, which lets you focus on paying off other debts.
Look for newer versus older vehicles
- Common sense might tell you an older vehicle costs less, but the truth is older vehicles tend to come with higher interest rates than newer ones. Ulzheimer recommends to look at new cars first and then newer used cars — these are the cars that tend to have the best financing options.
- Don’t think that just because you have bad credit you can’t get a car loan, according to John Ulzheimer, nationally recognized credit expert, who has more than 24 years of experience in the consumer credit industry . In addition, “don’t just assume that your credit is bad.” Your definition of bad credit might not be the same as your lender’s definition, and lenders have different requirements. Be sure to get quotes from multiple lenders so you don’t let one take advantage of you.