Buy a Used Car With Bad Credit
If you need to purchase a used car but have bad credit, you will find that your options are limited when it comes to financing because most banks and traditional finance companies only lend to those with credit that is at least marginal or above. However, there are ways to buy used cars, even if your credit is not good. Follow these steps for how to buy a used car with bad credit.
Steps
- Optimize your credit. There are steps you can take to improve your credit score as much as possible before you attempt to apply for bad credit financing:
- Order your credit reports from each of the 3 credit bureaus: TransUnion, Equifax and Experian.
- Verify that the information on your credit reports is correct. It is not unusual for credit reporting agencies to make mistakes that could wrongly lower your credit rating. Sometimes, improving your credit score is as simple as disputing inaccuracies on your credit report.
- Pay small judgments and past-due accounts off. Even nominal amounts that are reported as negatives on your credit report can impact your bad credit for the worse. Paying them off could save you money in down payment and interest.
- Wait 6 months after cleaning up your credit reports to buy used cars on credit. This will allow time for the credit updates and scoring improvements to take place.
- Set realistic expectations. Be prepared to have to accept a high interest rate and to have to put down a large down payment.
- Prepare a budget. List all of your expenses and compare them to your income. That way, you will know exactly what you can afford to pay per month and you can avoid getting yourself into a situation that could further worsen your credit.
- Save money for a down payment, title, tags, taxes and fees. If you have bad credit, you can expect to have to make a relatively sizable down payment in comparison to scenarios involving good credit. Plan on putting down 10 percent of the car's value.
- Look into auto financing for problem credit. It is best that you get pre-approved for an auto loan before you go shopping. Try these avenues:
- Dealerships. Find an auto dealership that specializes in used cars and bad credit financing. These are often referred to as "buy here pay here" lots.
- Credit unions. If you already have an account at a credit union, you may want to inquire there first. Credit unions are generally more lenient with their qualification requirements than other banks, especially in regards to their members. If you are not a credit union member, join a credit union and ask about auto financing for problematic credit.
- Cosigners. You may be able to find a friend or family member who will cosign for you to help you obtain an auto loan.
- Sub-prime lenders. These are lenders that specialize in lending to those with damaged credit. An Internet search will return numerous sub-prime lenders, and you can often fill out an application online and have an answer within minutes.
- Negotiate the sales price. Once you find a used car you are interested in buying, sit down with the salesperson or manager and negotiate the lowest purchase price you can.
- Complete the credit application. You will need to prove employment, income and residence, and provide whatever documentation the finance professional requires of you.
Warnings
- Do not agree to payments that are higher than what you know you can afford. The dealerships you buy used cars from may offer more than what fits in your budget, so remember that it is your responsibility to stay within a price range that is best for you.
- Beware of multiple credit inquiries, as they can lower your score even more. That means applying to only 1 auto dealer at a time, and only to dealers you know specialize in bad credit financing, and also verifying with the dealers that they are not sending your credit application to multiple lenders without your expressed consent.
