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How to Buy a Car with Bad Credit

David Andrew 12/5/16

Buying a new car is a big purchase very few people are able to pay off all at once. Most buyers need to use some type of financing like a loan or a lease.

However, financing a car can be a challenge if you don’t have a strong credit score.

Fortunately, there are a few steps you can take to increase your chances of buying a car, even with bad credit.

1. Apply normally.

Many people with bad credit don’t even bother applying for a car loan because they assume their credit score is too low to qualify for financing. This is often incorrect.

Since a car loan is for much less money than a mortgage, you can qualify for car financing with much weaker credit. Lenders are also more lenient with car loans because it’s much easier to repossess a car than a house.

Even if your score isn’t ideal, it’s worth trying to apply for a normal car loan. See our list of recommended auto loan providers.

2. Save up for a down payment.

If you can make a sizable down payment for a car, something around 20 percent of the purchase price, it significantly increases your chances of getting a loan.

When you make a down payment, lenders have less money at risk so they are more accepting of a lower credit score.

They’ll also see you had the financial discipline to save up money and that will factor in their decision.

3. Apply for a high-risk car loan.

Some lenders provide car loans specifically for people with weak or no credit history. These are called high-risk car loans.

If you can’t get a regular car loan, chances are you should be able to get a high-risk loan. The downside with these loans is they charge a fairly high interest rate, so you’ll end up paying more for your financing.

“If you can make a down payment, it

increases your chances of getting a loan.”

4. Consider a used car.

It’s easier to finance a used car than a brand new car. Since used cars are less expensive, you need to borrow less money, which makes it easier to get a loan.

In addition, used car dealerships work more frequently with buyers that have weaker credit scores. They are used to financing people with bad credit.

5. Get help from a cosigner.

If you can’t qualify for a car loan on your own, perhaps a friend or close family member can help by cosigning your loan.

When someone cosigns your loan, he or she is guaranteeing your payments with his or her credit score.

Lenders will make their decision based on both your scores, so if the cosigner has good credit, chances are you’ll qualify.

If you use a cosigner, it’s even more important to make your car payments on time, as missing payments will hurt your cosigner’s credit score along with your own.

6.  Keep building credit.

Regardless of which decision you make for your new car, it’s still important to work on your credit score.

Be sure to make all your car loan payments and other credit payments on time and your score will gradually get better.

If you weren’t able to qualify for a loan, chances are you might a few months later. If you took out an expensive high-risk loan, your better credit score could help you refinance to a more competitive rate later on.

However, before you can make any of these moves, you need to build up your credit.

Buying a car with bad credit isn’t easy, but these tips give you the best chance of qualifying. Follow this advice and you’ll be behind the wheel of your dream car in no time.

Photo source: security-faqs.com.

About David Andrew
David Andrew is a former New York Life financial adviser, holding Series 6 and Certified Financial Planner credentials from his years with the company. He also holds degrees in economics and finance from McGill University. David is now a well-published finance writer with special expertise in credit cards and auto insurance. In addition to his work on BadCredit.org, his articles have been featured on eHow, Zacks.com, TheNest.com, Chron.com and other popular sites. When he's not keeping up with the latest news in the world of finance, David enjoys playing tennis and golf.
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