Buying a car with bad credit may seem like it would be impossible, but that’s simply not the case. Car dealerships, whether they sell new or used vehicles, know that people need to get from place to place and are willing to work with their customers to make it happen. Banks also work to help the everyday driver by instituting co-signer agreements that allow the dealership to make a deal that works for all parties. For more tips on how to buy a car with bad credit, continue reading.
Start by Understanding Your Credit Score
A credit score is a number that tells a story about how well you manage your money and pay your bills. There are free sites that can give you a rough estimation of your exact credit score, but your FICO Score is the most accurate.
A FICO Score is a three-digit number that is broken down into five categories, including:
- Payment history which makes up 35% of your score
- How much you owe with makes up 30% of your score
- Your credit history, which accounts for 15% of your score
- Your maximum credit, which weighs in at 10% of your score
- Any new credit that has been established accounts for 10% of your score
In general, a low credit score is considered anything below 650, while a great score is above 720 all the way up to 850. An average credit score is somewhere between 650 and 720.
Knowing this, do your best to improve your credit score prior to walking on the lot. The quickest ways to improve your score are paying off any outstanding debts, refraining from unnecessary purchases and using that money for bills, and setting a budget to maintain this discipline. It is possible to recover from a bad credit score, all it takes is persistence and determination.
If you don’t have the luxury of time to improve your score, that’s okay too. There is an easy way to show your level of commitment to buying a car and paying it off without missing any payments. Before you go into the dealership, you should get a copy of your credit report. This will provide both you and the loan institution, bank, or credit union a more detailed report of your credit history.
Credit reports show any missed payments, debts, and lines of credit which are helpful for banks and dealerships to know when they are considering a financial relationship with you. You can use this report to discuss why your credit score has fallen and give yourself a better chance to walk away — better yet — drive away with the car you want.
Know Your Car Options
Bad credit scores aren’t the end of the world, but they do limit your options when it comes to buying a car. Therefore, it’s not only important to know the limits of your budget but also bear in mind that your low credit score will be a hurdle when trying to buy higher-priced vehicles.
Consider the monthly budget you are able to afford before you step onto the lot. There are many guides online that help to calculate how much of your paycheck you should use for car payments, but the average percentage falls somewhere between 10 and 25% of what you earn monthly.
If you aren’t able to afford a vehicle with your current paycheck, consider getting a loan. Use a loan calculator to see what your monthly payments would be to help you supplement the vehicle payment. This isn’t an option for everyone, but it’s good to know that there are ways to work around limited budgets. When you know how much you can afford, it makes it easier to hone in on the options you have.
Raise Your Credit Score
After considering your budget, understand that although you may be able to pay for the monthly payments, your credit score may still prevent you from buying the car. To set yourself up for success you will want to consider your timeline. Ask yourself if you can afford to spend a few months (or even years) working to increase your score. While this seems like an odd tip to provide, it is the only true way to easily purchase your vehicle without any bumps on the road due to bad credit.
Research Pays Off
Taking your time to do some research will save you in the long run. Interest rates fluctuate, so you’ll want to investigate current rates to determine when might be the best time to buy. Evaluate the road conditions on your commute, including seasonal weather patterns. Think about your hobbies, especially if you are someone who enjoys the outdoors, and look at what sort of features you may need to accommodate your lifestyle. Dependability and safety are key for every buyer, so look for these first. Avoid unnecessary luxuries.
Also, be wary of independent sellers, and always ask for Carfax and detailed maintenance records. You don’t want to commit to a car that will ultimately cost you in the long run.
The more you can contribute to your down payment, the better off you will be. Putting down at least 20% will not only show that you are serious about your purchase, but it will also lower your monthly payments, taxes, interest rates, and fees. And, if you end up needing to sell the car before you’ve paid it off, you’ll decrease your chances of owing more than it’s worth.
Be Smart About Your Financing Company
If you can, avoid opting in for in-house financing or loan companies that specialize in customers with low credit scores. These companies often take advantage of vulnerable customers by offering low monthly payments, then slapping on ludicrously high-interest rates.
Your best bet for a fair loan will be with your local bank or credit union. You know them and they know you. Chances are you’ve been with them for a while, and they can attest to your income and financial credibility more than a third party institution.
You may also want to consider online companies. These institutions generally offer better rates than in-house financing, and can sometimes give you more reasonable offers than local banks or credit unions. They don’t have the same overhead as places with physical locations, so they have the resources to give you better rates.
However, be careful with your search for a low rate, credible loan company if you decide to go the online payment route. Multiple inquiries can hurt your score, so make sure you are shopping within a very brief period of time, no more than a month.
If all else fails, consider getting pre-approved. Dealerships can do this for you, but seek the assistance of your local bank or credit union first.
Go Out and Get your Car
When it comes to making the final decision, don’t get caught up in an unbelievable deal; chances are, it’s too good to be true. Be wary of scams and read all of the paperwork meticulously before you finalize your commitment.
If you aren’t able to buy the car due to your credit score, create a plan to get your finances in order. Plan to make a large down payment, submit your monthly payments on time, and manage your personal budget accordingly and you’ll be driving your own car in no-time.
