“Bad credit, no credit—we finance everyone—your job is your credit.”
Those ads can look really good when you’re in a tight financial situation. However, they can also be delectable bait on a toxic hook. Buying a used car when you have bad credit doesn’t have mean walking on the dark side of auto financing. Nor does it have to mean sacrificing your self-esteem. Here’s how to get a good deal without sacrificing your cash or your dignity.
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Know Your Credit Score
Rather than assuming you have bad credit just because you’ve hit a rough patch, check your credit report to find out for sure. If you wander into a dealership, tell a rep you have bad credit and ask what they can do, you’re leaving yourself vulnerable to all sorts of chicanery.
We’re not saying every dealer would take advantage of the situation, but some would—so it’s important to know your score before you walk through the door.
You can get a free copy of your credit report at AnnualCreditReport.com. If your score is 700 or better, you have nothing to be concerned about. If it’s lower than 700 you can still get a loan, you’ll just pay more interest on it. If the number is between 580 and 669, you’ll fall into the subprime category and you’ll need to work a bit harder to get a decent loan.
With your credit score in hand, along with all of the documentation you’ll need to prove you’re gainfully employed (pay check stubs, tax returns, etc.), apply for a pre-approved loan. Go to your bank or credit union first if you’ve been with them for a while.
When people know you, they’ll see you in ways strangers would not. Be careful to limit your applications to one or two places over as short a time period as possible though. Each application triggers a credit check and too many of them can lower your score.
Applying with an online lender can mitigate this, as many will shop your application to a number of different lenders with one inquiry. Another advantage of dealing with an online lender like RoadLoans for the best bad credit car loans is many of these funding sources specialize in helping people in your situation.
Gather a Down Payment
Showing up with a significant down payment (20 percent of the purchase price or more) will stand you in good stead when it comes to bad credit financing. Lenders usually perceive you as less of a risk when you have some of your own money on the table too.
If you are trading in a different car as your down payment, you may want to see if you can sell the other car outright for more money. Look up the Kelly Blue Book value to see what the average price is for your car to trade in or sell privately. If you car is not in good shape, it may be better to junk it out for parts and scrap metal. Check out CarBrain on how to get the best deal for junking a car.
Buy the Newest Vehicle You Can Afford
One of the ironies of buying a used car is the older you go, the more expensive it will be to finance it. Lenders want to be positioned to recoup as much of their investment as possible should things go sideways. They’ll get their money out of a newer car more easily than an older one, so they offer lower interest rates on newer cars.
Plan to Refinance
Still, buying a used car when you have bad credit will mean paying a higher interest rate. However, after about a year or so of making solid on-time payments, your credit rating should improve and you can refinance at a better interest rate.
These five tips will help you get the best possible deal on a used car when your credit rating is less than stellar. Once you get the loan, do everything possible to make your payments on time so you’ll have a shot a converting it to more favorable terms.