How to Buy a Car When You Have a Low Credit Score


Low credit scores impact your purchasing power regardless of the cause of your bad credit. Car dealerships often must raise the interest rates for buyers with low credit scores because of the increased risk versus buyers with good credit.
If you’re in the bad credit category but in the market for a car, it’s time to search for lenders who’ll work with your financial situation. Don’t automatically accept an above-average interest rate simply because of poor credit. The seven considerations below can help you secure a fair loan when it’s time to buy a car.
Shop Around
If you think bad credit means shopping around is out of the question, think again. Even with bad credit, comparing the options is important because all lenders have different definitions, terms, and rates. Doing a bit of research before buying a car can help you learn the various lender rates, ensuring that you aren’t taken for a ride that you don’t want.

Do You Really Need a Car?

Ask yourself why you’re buying a car and evaluate the options available. Are you buying because there’s really no other method of transportation available or simply to spoil yourself? If it is the latter, perhaps building your credit up for six months before attempting to make the purchase will help you get a better deal on the car. Pay your bills on time and start working on past-due obligations during this period.
When buying a car with bad credit, expect your loan to carry a high-interest rate.

Get a Cosigner

A cosigner may be able to help reduce the interest rate that you pay when buying a car. Cosigners are not beneficial in every situation, but they are in many. This includes situations where your income isn’t enough to gain loan approval or when you have a variable income, bad credit, or other issues stand in the way.
When you ask someone to cosign for an auto loan with you, this is asking a lot of this person since they will be responsible should you fail to make payments on the car. Use the cosigner method to lower interest rates only when you are certain in your ability to make the payments for the vehicle on time and in full.

Shop for Newer Cars

Many people being their search for a car with older models because the sticker price is lower. But while the price tag is lower for these models, you’ll likely spend more in interest. Older vehicles usually have higher interest rates than newer model cars.
Of course, this isn’t always true, so it is best that you compare your options to learn which the best for your needs is. And remember, if you have hard cash-on-hand to buy, an older vehicle may very well be what you need. Consider first selling your old car and using the proceeds to fund most or all of your new car purchase.

Shorter Loans Rock

If you opt for a three-year loan over a five-year loan you’ll save a considerable amount of money in interest alone, even when the monthly payments on that loan are a bit more. You’ll pay less money to own the car and that’s always a good thing. Plus, without car payments for these years, you can focus on rebuilding your credit back to good standing. Before you sign on the dotted line, research the options to determine if a shorter loan period can be of benefit to you as well.

Perform a Two-Week Search

Each time a lender checks your credit score your credit score will drop slightly. You do not want this to happen multiple times if you can help it, so ensure that you have all your scores pulled within a two-week period. Multiple enquiries will count against you only once when they are in the same genre, in this case, automobiles. Two weeks is plenty of time to find a great vehicle, so don’t panic.

Look at Your Credit Report

A knowledgeable buyer is the best buyer; go into the dealership informed. You can get a free copy of your credit report from each of the three major reporting bureaus once a year. Obtaining a credit score report at other times is low-cost and worth the small amount of money it costs. When you go into the dealership knowing your credit score, you are better able to discuss financing options and you don’t need to rely on the dealership’s claims.

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