Buying a Car with Bad Credit

As a consumer, you’re ultimately in control of whether you get approved for an auto loan. With poor credit history, however, the task can be challenging. You may need to shift the way you think about shopping for a vehicle and be honest about what you really need in a car. Here are five things you can do to help you finance a car if your credit is less than ideal.

Fix Your Credit Report

Before applying for an auto loan, it’s important to check both your credit score and credit report. Each of the three major credit-reporting agencies will provide you with one free report per year. If you find any errors on your credit report, try getting them fixed as soon as possible. Paying off the balances of any past-due accounts would also be recommended. Fixing your credit report in these ways could increase your credit score and credit trustworthiness, and help you secure a more competitive rate on a loan.

Try to Get Pre-Approved

Bad credit can make shopping for a car exasperating, especially when you find what you want, and then lenders are simply unwilling to extend you a loan. By talking to your bank or credit union, you may be able to get pre-approved for a specified amount. This will help you know your budget without the uncertainty of being rejected for credit reasons.

Make a Larger Down Payment

Having poor credit unfortunately means that the amount of the car loan available to you will likely be limited. Additionally, you will probably also be faced with a higher interest rate if you’re approved. If you can afford to make a larger down payment, however, you could lower the loan amount and perhaps negotiate a lower rate as a result.

Skip the Extra Features

If you’re buying a car with bad credit, you have to be realistic about the features you want versus those that you actually need. By reducing the number of extra features—those that aren’t absolutely essential (i.e., leather seating; high quality sound system, sport rims, etc.)—you can help lower the total price of the car and, likewise, the loan needed to pay for it. Lowering the amount of the loan you request will not only make it easier to repay on time, but it might also increase your likelihood of approval.

Apply for Assistance

There may be nonprofit agencies or government programs that provide auto loans to low-income consumers. These vary depending on your state, so it’s best to check to see what may be available. For example, in California, the statewide Clean Vehicle Assistance Program provides personal grants and affordable financing to help lower-income Californians purchase a used or new conventional hybrid, plug-in hybrid or battery-electric car.

Keep these tips in mind if you’re looking to purchase a car and your credit score isn’t as high as it could be. Although difficult, finding a loan with bad credit is not impossible—it just may take more effort and planning.