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How To Buy A Car With Bad Credit

Believe it or not, you can still buy a new car even if you have bad credit.

But you need to be careful during the process. Here are 5 points to keep in mind when buying a car with bad credit.

1) Don’t limit your choices to used cars.

You may have heard or read a piece of advice that encourages people with bad credit to purchase a used car that still runs well. A used car is cheaper than a new car on price basis. And most sub-prime lenders are more likely to finance a cheaper car.

But don’t scratch a brand new car out of the options. There are dealerships and lenders today that would finance a new car for people with less-than-perfect credit. Why?

  • For them, a new car has more value which lenders can benefit from if ever they would have to repossess the vehicle.
  • Lenders are confident that you will be able to keep up with the payments because you don’t have to spend money on repairs. (You can never be certain whether repairs will squeeze out all the money in your wallet when you buy a used car.)
  • These lenders and dealers prioritize customer relationship over return on investment or ROI. The former is a better investment that will pay off over time, particularly through referrals and after-purchase services, they say.

2) Offer a down payment.

If you have bad credit, you might be tempted to get into a zero-down auto loan, a car financing program that does not require a down payment. That offer sounds cash-saving. But keep in mind that skipping the down payment only causes your auto loan to be more expensive.

So even if you don’t have a lot of cash, make it a point to put some money down for a car purchase. People today make an average of 11% down payment. It’s several percentage points down from the ideal 20%. But that’s completely okay and better than paying nothing.

3) Have enough income to cover the payment.

Lenders love it when you have stable employment that pays well. They always need an assurance that you can pay back the money you borrowed.

But aside from that, having sufficient income also benefits you. Before you actually take out a loan and buy a car, check your cash flow first. Make sure your income can cover the monthly payments and car ownerships costs, such as insurance, maintenance and repairs, parking fees, and gas allowance.

4) Obtain a short-term loan.

One way to get approved for a car loan easily even if you have bad credit is by keeping the loan term short. Lenders do not want to stay at risk for too long. They would prefer to be paid back as soon as possible.

Moreover, it saves you more money. The idea that longer loan terms, which reduce monthly payments, are more practical than shorter terms is actually wrong. Use an auto loan calculator to compare various loan setups and find out the truth.

5) Find a reliable dealership.

You have at least a couple of choices of dealerships that sell to people with bad credit.

You have “buy-here-pay-here” dealerships. These are your small local dealerships that offer in-house financing. That means they sell you a used car and finance it for you as well. But a lot of such dealerships are dishonest and abusive.

If you don’t want to try your luck with them, you can go to the traditional and big dealerships in the city. You can get a brand new car from one of these. But because you have bad credit, expect the interest rate to be high.

In any case, choose a reliable dealership that cares about your welfare. Even if car dealerships in the U.S. have earned an unpleasant reputation, there are still a lot out there that can truly help you.