How to Buy a Car When You Have Bad Credit

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A credit score of 629 or less means you will pay a higher interest rate on a loan when you want to buy a car. If it’s 540 or below, you may even have a hard time getting any financing at all. Don’t just give up without even trying, though. If you decide you really need a new car, shop around and explore your options. Here’s what to consider if you have bad credit and are thinking about purchasing a car.

Determine if you really have to buy a car

Step 1: Consider how often you must travel and how far you have to go. Can you get to where you need to go without a car?
Even if you can get by without a car for another year, it could make a difference. Take that time to pay down current debt and improve your credit score.
Step 2: Figure out if you can use a different mode of transportation. For example, could you get there on a bicycle or moped? It will save you lots of money and be more eco-friendly.
Step 3: Check the local public transit schedule. If you can take the city bus for a year or two, while you focus on raising your credit score, it could make buying a car easier and cheaper.
Step 4: Ask a friend or family member if they would share their car. You would need to get a non-owner car insurance policy, but it would save you money.

Check your credit score and find out if you can improve it

Step 1: Get a current credit report. You are allowed to do this for free once a year. You need to know what your score is, what is on the report that is negatively impacting your score and if you can improve it.
Step 2: Contact the holders of any outstanding debt listed on your credit report. Find out if you can arrange to make small payments to pay off the debt.
Step 3: Make sure your credit report is accurate. Sometimes debt gets assigned to the wrong person. You may be able to raise your credit score by simply straightening out a misappropriated debt. It’s not always easy to fix, but it can and should be done.

Shop around for financing

Step 1: Contact your bank first. If you have had an active checking account with them for at least a year, they may give you a break on your car loan interest rates.
Step 2: Contact other financing institutions. Don’t settle for the first offer. Institutions that are more likely to give you a better interest rate include:
  • Credit Unions
  • Finance companies
  • Car dealerships
  • Other banks
Be wary of “Buy Here/Pay Here” car lots that promise financing, regardless of your credit score. They charge exorbitant interest rates and don’t have to let the credit bureaus know if you make your payments on time.

Shop for your car

Step 1: Look at new cars and newer used cars. You may be surprised by how much better the interest rates are for new cars than used cars.
Step 2: Look at some older used cars. If you find one that is in really good shape that you can get a good deal on, a higher interest rate won’t hurt so much.

Consider refinancing

Step 1: Buy your car and make the payments. If you make your payments on time every month for a year or so, you may be able to refinance for a lower rate. Just be sure to pay at least the minimum amount due on time every month.
** Step 2: Shop around for a better rate**. Call around to find the best interest rate before you refinance. You will be amazed by how much you can save.
Having bad credit doesn’t mean you can’t buy a car but it does mean you need to take a few extra steps and work a little harder. The best thing to do is work on improving your credit score for the future so your next car purchase is easier.

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