How to Finance a Car with Bad Credit

How to Finance a Car with Bad Credit
GUIDE
Mike Randall
By: Mike Randall
Posted: January 9, 2015
BadCredit.org's popular "How-To" series is for those who seek to improve, rebuild or better understand their subprime credit rating.

Just because your credit is in the tank, that doesn’t mean you have to continue driving that 1983 gas-guzzling monster. With all the money you’re spending on gas, you could actually get a decent car and put that money toward a car payment.

I bet the next question you’re going to ask is: How do I buy a car with bad credit? There are some tricks of the trade that could get you on the road in style easier than you think.

Here are some suggestions for how to finance a car with bad credit.

1. Have a decent down payment

Many times a dealership will consider a loan to someone with bad credit if they are putting up a large percentage of the selling price as a down payment.

This is because they see you are serious enough to put your own money at risk, not just theirs. It also means they don’t stand to lose as much if you stop making your payments.

2. Bring your credit report into the dealership

Be prepared to explain it line by line. If you do have valid reasons for the negative marks on your report, be sure to tell them about it.

Be honest and be prepared to talk about some things that might not be easy. It’s amazing how far a little humility and honesty can get you.

The dealer might be interested in seeing your credit score as well.

3. Do your research

Choose a car that may not be a popular model for your area. This may sound strange, but it makes sense.

If a car has been on the lot for a long time, a dealer may be itching to get rid of it. He’s losing money every day it sits there.

However, this is a good approach only if the car appeals to you. It does no one any good if you are unhappy with the car you end up with.

4. Be prepared to pay a higher interest rate

However, don’t allow yourself to get robbed. It’s almost certain you’ll pay a high interest rate to finance a car if you have bad credit.

Do your research and find out what the average rates are for the vehicle you’re interested in. Then add in up to 5 percent more for the fact you have bad credit, but don’t factor in more than that.

It will defeat the purpose if you find out after six months you can no longer make the payments.

5. A local used car lot versus a big dealership

Sometimes your neighborhood used car lot is a good place to finance a car. Be very careful if you decide to go this route and thoroughly check them out.

If they seem like a well-respected business, go to them with the perspective you are from the neighborhood and are looking to buy from a local business. This may have an influence on them, but don’t let them take advantage of you.

6. Try getting a loan from your bank or credit union

Sometimes they will actually have vehicles that have been returned from lease and may want to sell you one if you are a customer in good standing.

This is especially true of credit unions. If you aren’t a member of one, I highly recommend you join. In fact, you can go in and ask what vehicles they may have on their books even before you become a member.

7. Consider getting a loan from family

If done properly, this can be an excellent way to get your car financed without having to go through a credit check or application process at all.

But be careful with this kind of an arrangement, as it obviously has the potential for bad blood.

The best thing to do when taking out a loan from family is to treat it exactly the way you would a bank loan.

This means making payments on time every time. Also, it means handing over the title to the car until it’s paid in full.

It may also be advantageous to repair your credit a bit before you go looking to finance a new car.