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Buying a Car with Not-So-Great Credit

by Emily Guy Birken

“Bad credit? No credit? You can still drive a car off the lot today!”

This is the sort of slogan you might hear from your local car dealership every day. But the truth is a little trickier. It’s certainly possible to qualify for a car loan with less-than-stellar credit, but it might not be the best financial decision. If you’ve got a credit score with a few battle scars, this is what you need to know before you start shopping for a new set of wheels:

How Low is Too Low?

How to buy a car with bad credit

You have options, even with bad credit.

The good news is that lending requirements are loosening up as the economy continues to recover. According to Allie Johnson of Fox Business, “during the worst of the recession, stringent loan requirements shut out many buyers with poor credit, skewing the average credit score of car buyers very high, to a peak of 776 for new car buyers in early 2010…[but now] more buyers with poor scores are getting approved.”

While there is no particular score at which point everyone will turn you down for a loan, you should realize that a lower score means you will have to pay more to finance your car. Generally, if a score of 700 or above is considered good credit, 600 to 700 is okay, and 500 to 600 is where you’ll find yourself paying much more for your financing.

Before you set foot on a car dealership, take the time to check out your credit report and get your credit score. This will give you an opportunity to fix any errors on your report that might be dragging down your score. Though you can get your reports for free, you will need purchase your credit score from one the credit bureaus or myFICO.com. This is a small price to pay to know where you stand.

Save Up and Pay Down

If you have some time to play with before you need a new car, you should take that time to save up for a higher down payment and pay off some of your debts. Having a sizable down payment to offer your lender will make you a much more attractive borrower, even if your score isn’t the greatest. And if you can also improve your credit somewhat during that time, it will save you even more interest once you’re ready to negotiate with your lender.

Shop Around

Car dealerships work hard to make themselves seem like one stop shopping—you can get your car and your financing all in one place. But you’re much more likely to find affordable financing elsewhere. Check with your bank and area credit unions for auto loan rates, and compare them to the rates you can find online. You’ll not only have a better sense of your financing options, but you also won’t be caught up in the wheeling and dealing at the dealership.

Consider Used

If you need to finance a used car, you will generally pay a higher interest rate than you would for a new car. However, the lower price can help you to save money overall. And if you are willing to save up so you can pay cash for an older model, you can look forward to driving without a car payment, which can only help your bottom line—and possibly your credit. Just make sure you get your new (to you) car checked out by a trusted mechanic before you sign anything.

The Bottom Line

It is possible to buy a car with bad credit, but to make sure you’re not paying through the nose for your new car, you’ll need to do your homework.

Image credit: the_toe_stubber


Published or updated October 11, 2012.
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{ 1 comment… read it below or add one }

1 Kris

If possible, you should shop around and see if you can get a car loan before you start shopping. That way you’ll know how much you qualify for, you won’t have to worry about the haggling at the dealership between price-payment-interest, and finally you’ll probably get a better interest rate.

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