Buying a car with bad credit may not seem realistic, but you shouldn’t get discouraged. There are ways to turn your credit around, as well as options for financing a reliable vehicle at the same time.
After all, bad credit is much more common across the country than you might think. Approximately 1 in 3 Americans have a credit score lower than 601, the cutoff point that major credit rating bureaus set as the difference between “fair” and “bad” credit.
Dealerships aren’t in the business of turning down 33% of their possible sales, and that means there are opportunities out there for well-informed consumers to get a car with bad credit. This step-by-step guide provides tips for getting the best deal on a car regardless of your credit history.
Step 1: Correct Bad Credit Habits Immediately
Your credit score is measured by a number of factors like how much debt you have, the types of debt you are carrying, and your ability to make payments on time. By making a number of adjustments and paying off the debt that’s giving your score the most problems, you can improve your credit score by a significant margin over the course of a month or two.
It may seem obvious that improving your credit will help you purchase a vehicle, but most people aren’t aware that a few small changes can have a big impact on their ability to get better financing terms. Here’s a few ways to improve your credit right away:
- Review what’s affecting your credit score the most
- Catch up on late payments ASAP
- Close any open credit accounts you can by paying them off
- Consolidate revolving credit (like credit cards) with fixed credit (like a personal loan)
- Adjust spending habits to limit credit card use
Step 2: Save Up for a Down Payment
Having bad credit doesn’t mean you have to stop saving money. In fact, having extra cash on hand is arguably even more important if you are struggling with bad credit. When it comes to bad credit auto financing, the more money you can pay upfront for your new vehicle, the better.
Your loan amount will be less, which will instantly improve potential financing options. Plus, demonstrating that you can make a full down payment (at least 20% of the total price) will help to send the right message about your trustworthiness as a loan customer when you apply for credit.
Step 3: Review Your Monthly Budget
Finding a bad-credit-friendly car dealership or auto loan lender willing to work with you doesn’t mean you can skip negotiating. You’ll still need to convince lenders that you’ll be successful in paying off the loan and press them to get the best interest rate available. It’s also easier to understand what you can afford if you have a clear picture of your monthly spending.
Early in the car shopping process, take time to review all of your financial statements and generate a complete budget. You’ll gain confidence with the knowledge of what you can realistically pay each month, confidence you’ll need while debating the terms of your loan or lease.
Step 4: Hunt for Non-Local Top Deals
One of the easiest ways to find a great deal on a car and lessen your total loan amount is to look for a deal outside of the city limits. From family owned, long-running specialty dealers to regional dealers that require a bit of a commute, you’ll have to do a bit of old fashioned research to find the lowest price on a reliable vehicle. Don’t assume you’ll find every deal in your backyard or advertised on the Internet.
Step 5: Research Financing Scenarios
Knowing the ins and outs of finances, especially auto finances for bad credit, is critical to successfully negotiating fair and affordable loan or lease terms for your new car. It’s a big help when you understand terms like Annual Percentage Rate (APR), which refers to the interest a loan will accumulate every year.
Also consider brushing up on average auto finance rates for other people with similar credit, as well as the Kelley Blue Book value of the car you’re shopping for. These will be valuable reference points for your negotiation if the dealer or lender says something that doesn’t seem make sense.
Step 6: Reach Out to a Proven Lender
Where you go to apply for auto financing will also have a major influence on whether or not you’re able to get decent financing as a shopper with bad credit. Thankfully, some lenders specialize in helping people with lower credit scores get on a reasonable payment plan that meets their budget. Working with one of these institutions will obviously go a long way to making your life easier as a car shopper with bad credit.
That being said, there are plenty of unscrupulous car sellers and third-party lenders looking to take advantage of people who desperately need a car. Getting bad lease terms from a suspicious dealer is moving in the opposite direction of your goal; you’ll need to do your best to avoid working with these types of businesses.
Here are a few tips on how to spot shady auto financers:
- Avoid any dealer or lender who seems hesitant to show you all the paperwork
- Be wary of dealers who let you take a car home before funding is approved
- Keep an eye out for suspicious fees and charges an auto lender can’t explain
- Don’t feel pressured to take on costly add-ons that raise your monthly rate
- Remember to peruse online reviews to get a feel for a dealer or lender’s customer service
Already interested in working with a specialized lender to get a car with bad credit? You can get a head start by reaching out to USA Auto AZ, a used car dealership serving Mesa, Arizona and the entire East Valley. Our goal is to get as many Arizonans behind the wheel of a dependable car as we can, and that starts with making smart financing available to everyone.