How To Buy a Car With Bad Credit: Guides & Tips

Buying a car with bad credit can seem like an impossible task, but it doesn’t have to be. There are many different options that you can take to help you finance a car even if your credit is less than stellar.

What causes bad credit?

There are many different reasons for having bad credit, but the most common would be late payments or defaulted loans. Without going into an explanation of how credit works, suffice it to say that when you don’t make your payments on time or when you default on a loan, your credit score is affected.

how to buy a car with bad credit - What causes bad credit ?

If you’re not making your payments on time, then you may end up getting sent to collections by the creditor who gave you the loan. If they decide to send it off to collections then they will report that collection account to the three main agencies that track credit: Experian, TransUnion and Equifax. All three of these agencies will assess your available credit and may report you to the credit bureaus. The negative mark in your file will stay there for as long as necessary, so even if you start making payments again on time by the time that collections accounts report to the credit bureaus again, you will still have a bad credit rating.

And if you defaulted on a loan, then it’s not just the original creditor who determines whether or not you have good or bad credit. The company that bought your loan from the original creditor will report it to the credit bureaus as well. Defaulting on a loan can also have a negative effect on your entire credit score.

This is why it’s so important to make sure that you get any and all late payments or collections cleared up before you begin looking for financing on a new car. Clearing up bad marks in your credit history will allow you to get the best financing possible, so read on for information on how to do just that.

The benefits of buying a car with bad credit

Here are some steps to benefits of buying a car with bad credit:

how to buy a car with bad credit - The benefits of buying a car with bad credit

1. If you have bad credit, then you’ll probably have to settle for a used car. New car lenders look at your credit history before they decide whether or not to approve a loan. If they see that your history isn’t the best, they may deny you the ability to finance a new vehicle. The only way around this is if you can put down enough money as a down payment so that the lender can still make money on your loan.

2. If you can’t put down enough money to finance a new vehicle through a lender, then used car loans may be the way to go. This is because these cars aren’t brand new, but they aren’t also too old either. They are also usually much more affordable than a brand new car so that you still have plenty of money left over to pay cash when your loan comes due.

3. If you’re having a difficult time paying off a loan, then buying a used car may be able to help you. There are many different ways that you can buy and sell used cars, so if you need to sell your car in the future then there’s a good chance that it will be easy to find someone who’s willing to buy your car.

4. Having bad credit may also prevent you from getting certain types of loans like student loans, business loans and more. Again, the lender will see a bad credit score and assume that you’re not going to be able to pay the money back.

Steps to take before buying a car with bad credit

1. Make sure that your payment history is clean: If you have any collections in your payment history, then it’s a good idea to make sure that these are removed from your report before you begin shopping for financing on a new car. If they aren’t then they’ll hurt your chances of being approved for a loan badly.

2. Check your credit score: It’s a good idea to check your credit score before you apply for a loan. If you find that you have less of a credit rating than expected, then this will give you plenty of time to correct the situation instead of just assuming that your credit rating is fine and getting refused for financing later on.

3. Look for loans outside the normal banks: Many people think that they can only get financed for a new car by a bank, but this isn’t necessarily true. There are many different money lending services and dealerships that are willing to finance a new car even if you have bad credit. As long as there’s a good reason why your credit is less than ideal, they will be more than happy to work with you in order to give you the best financing available.

4. Look for dealerships outside the normal ones: You can also try looking for dealerships that aren’t within your normal range of travel. This may be an idea if you are based out of a different state than where your normal dealer is.

5. Get pre-approved: If you want to get more financing options, then it’s a good idea to get pre-approved through your current bank before you begin looking at dealerships and financing websites. Banks will often give their best customers the chance to be approved for better loan products anyway, so it’s worth a shot.

Why credit matters when buying a car?

  • Terms of the loan: The interest rate will vary, but they’ll also factor other fees into the cost.
  • Repossession rates: The interest rates on these types of loans are higher than standard auto loans.
  • Loan amount: If you don’t have good credit, you may not qualify for a loan that covers an entire purchase. Your income and assets might be too low or your debt repayment history might be too messy for lenders to give you enough cash to buy a car outright.
  • Monthly payments and total cost: With a secured loan, you’re not borrowing money. The lender actually puts up some of your savings (checking account or savings account) as collateral. Your car will likely be listed as “collateral” for the loan, too.
  • Lapsed payments: Not all lenders report the amount of unpaid loans to the credit bureaus. So, if your car gets repossessed, it could hurt your credit in a big way.
  • The lender’s experience: When you have bad credit, it’s better to go with a reputable lender. Lenders with a long history of working with people who need bad credit auto loans have the experience and expertise to figure out the best way for you to get a car and make your payments on time.
  • Roadside assistance included: When you buy a car through some of these lenders, they include free roadside assistance. This can help keep your costs down, because if you need to get your vehicle off the road and in for repair, you won’t have any out-of-pocket costs.
  • Special financing: Buying a car with bad credit means that you’re probably not going to be able to buy the car outright.

Tips for negotiating with dealerships

how to buy a car with bad credit - Tips for negotiating with dealerships

1. Show up prepared.

2. Do your research and know what you want.

3. Don’t be afraid to walk away.

4. Get your “dream sheet” ready for the dealership; list the car, year, make, model, condition, and equipment you want.

5. Apply for a cosigner if credit is an issue. 

6. Get a car worth your hard-earned money.

7. Don’t be lured into buying optional equipment and other extras.

8. Shop around; get at least three quotes.

9. Consider buying a “certified pre-owned” vehicle.

10. Know the car’s value in the marketplace .

11. If you have bad credit, don’t deal with any dealer who says they can “fix your credit” or has special programs to help people with bad credit;

12. Know “the golden rule” of buying a vehicle: the dealer is always right.

13. Do your homework beforehand; it will help you land a better deal and avoid being overcharged.

14. Don’t be afraid to ask for concessions when you find the model, year, and options you want; there is no harm in asking and don’t forget to deal in good faith .

What to look for in a bad credit car loan?

  • Interest rate- A car loan is a long term commitment and you want to pay as little interest on it as possible.
  • Loan Terms- For example, a 36 month loan with no money down just means the total amount of interest you will be paying over the course of those 36 months will be higher.
  • Down payment- You may want to put more money down if you can in order to get a lower monthly payment or because your credit score is low enough that most lenders require it for financing.
  • Total cost of the vehicle- Some lenders offer better rates on some cars than others so it will be important to find out which car you are going to buy in order to get the right financing.
  • Dealer prep fee’s- Some dealerships may try to make money on top of your financing by charging fees like plate fees or other add ons.
  • Lender fees- There may be a few lender fees related to processing your loan and getting it funded.
  • Penalties- Some loans may have prepayment penalties which will make it difficult to refinance or pay your loan off early, so keep that in mind when choosing a loan.
  • Who will service your loan?- Looking at a lender who can service your loan right throughout the life of the loan is always a wise choice.
  • Customer Service- It may not seem like it’s that important, but good customer service can make the difference between paying on time and missing payments.

Is buying a car with bad credit a good idea?

Yes it is, as long as you follow certain rules. Negotiate the price of the car before you agree to purchase it. Never pay sticker price for a car-you can always get a better deal if you haggle.

Dealers often want your business so badly that they will give you a discount off of their sticker price to get the sale.  Never tell them that you have bad credit – until after negotiating the deal and getting a lower price from them.

Always ask for the price when you are buying the car and never look at their face and say “Well you know what?. They will not be very happy in that case. When negotiating the deal, always make sure that you know exactly how much you will owe after taxes and fees. 

Take a look at your budget before going to buy a car. It is not an easy thing to do because of all of the different things that we have to purchase in our everyday life.

The disadvantages of buying a car with bad credit:

  • Not being able to make payments on your car.
  • Unable to get a loan for your car.
  • Your credit report will continue to be lower than before, making it difficult to buy another car.
  • You may be left with the burden of paying off your new car if you have bad credit from past mistakes.

What are the best ways of buying a used car with bad credit?

Choose AAA Approved. It’s always wise to buy from an AAA Approved dealer because they’ve provided certified quality checks and tests.

Tips for buying a car with bad credit

A car purchase is a big decision, and it’s even more challenging if you have bad credit. If your score is in the poor range, financing your purchase can be next to impossible. But it’s still possible to buy a car, even if you have bad credit.

Get your loan and trade-in approved in advance:

Whether you’re buying from a dealership or a private individual, get everything in writing ahead of time. The lender should send you a letter stating the interest rate as well as the length of the loan and how much you’ll pay each month.

Learn what your score means:

Your credit score is a 3-digit number that’s based on your credit history. Each lender has its own scoring system, but if you have a score in the low to mid-500s, you’ll probably be paying a high interest rate.

The higher your score, the better your chances of getting a lower interest rate and more favorable financing terms.

Know how long it will take to raise your score: 

The length of time it takes your credit history to show up on your report varies among the three major credit bureaus. Equifax reports new information, such as a new loan or credit card account, every month, while Experian reports new information quarterly. TransUnion only reports new information once each year.

Scope out loan rates from multiple lenders: You may be able to find lower interest rates and better deal if you shop around for loans instead of going through dealerships.

Repair your score: 

Credit repair companies can help clean up your credit report.

Look at payment options: 

If you’re going to pay monthly installments, shop around for lower interest rates. And be sure to factor in compounding interest when comparing loan terms.

Purchasing a used car with bad credit is possible, but it will take more work and understanding of the entire process than purchasing a new car would.


It is important to find which lender you want to do business with. This could be done by looking at the different rate quotes from multiple lenders, and finding out what the financing terms will be for that particular lender.

Bad credit is not as bad as it seems. If you are willing to put in the time and effort in order to fix your credit, you will definitely have the ability to buy a used car with bad credit

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