6 Tips for Buying a Car With Bad Credit
Your credit score plays a big role in the type of financing you can secure for a vehicle. However, having bad credit doesn’t mean that you can’t buy a car. You’ll simply need to put a little extra thought and preparation into the process to make sure that you get the best deal for your needs.
Understand Your Credit Score
Understanding your credit score will help you plan for your car purchase, even if that score isn’t as high as you’d like it to be. It’s important to know your standing so you can take the appropriate steps. A low credit score is generally considered to be anything that’s under 629. You can get your credit score from many banks and credit card companies that will monitor this information for you.
To better understand the factors that contribute to your credit score, you should request a copy of your full credit report. You can get a free copy of your credit report from each of the three reporting agencies — Experian, TransUnion, and Equifax — once a year. Your credit report will detail all your credit accounts, specifying when they were opened, what the remaining balance is, how your payment history looks, and whether the account is in good standing.
If you find inaccurate information on your credit report, you can dispute this with the reporting agency. Correcting errors on the report can help you increase your credit score.
Prepare for Your Purchase
You can get workable financing for your car with bad credit, but it takes a little extra preparation. Each time you apply for financing, the lender will check your credit. These inquiries actually decrease your credit score, so the act of shopping for a car can pull your score down. The best way to handle this is to compare lenders and make a purchase within a relatively short time frame. Your credit score is usually updated every two weeks, so you can get several different offers for financing before the score is updated to reflect the inquiries.
With this in mind, you should do all your research ahead of time so you have the information you need to pull the trigger fast when you find the right deal. Some of the things to consider when you’re getting ready to buy a vehicle include:
- The number of passengers you need to carry.
- The type of driving that you do.
- Your desired fuel efficiency.
- How much cargo space you want.
- Whether you do towing (and if so, what type).
- What features you need and want, such as a backup camera or lane departure warnings.
Gather a Down Payment
The larger your down payment on a vehicle, the smaller your loan. If you have bad credit, making a bigger down payment can really help your situation. As a rule of thumb, you should try to put 20% down on a new vehicle and at least 10% down on a used vehicle. If you don’t have the money for a down payment, consider how you might pull together some extra funds for your purchase.
If you can afford to wait a few weeks or months before making your purchase, you can implement some creative saving strategies to help fund your vehicle. Go without your morning coffee run for a period of time, pick up a few odd jobs, commit to cooking in if you often eat out, or cancel some automatic memberships that you can do without. Funnel all your extra funds toward your down payment so you can put as much as possible toward your vehicle.
Work Our Your Budget
It’s important to understand your budget before buying a car so you don’t get into a situation that will only make your credit worse. Make sure you secure affordable monthly payments that you’ll always be able to pay on time. List all your regular expenses, from your utilities and rent or mortgage to your toiletries, haircuts, and entertainment. Compare this to your monthly income and see how much you can reasonably pay for a vehicle.
Ideally, you will be able to funnel money toward paying down other debt and maintaining some emergency savings without impacting your ability to pay for your vehicle as well. Keep in mind that your vehicle will come with some other additional expenses, from the license and registration to insurance, fuel, and maintenance. Include all of this in your budget as you’re deciding what you can afford.
Research Different Lenders
Some lenders cater more to shoppers with poor credit, so it’s always worthwhile to compare different offers. You may also want to compare financing for a new car versus a used car. The financing offers and interest rates themselves are often better on a new car, but you will pay more for that car in the long run. You’ll pay less overall for a used vehicle, but may find the financing less favorable with a higher interest rate to accompany the purchase.
Choose the shortest term that you can afford. These usually come with better financing because the lender assumes less risk when you’re paying off the loan in less time. This also increases the chances that you’ll be able to pay the loan off in full well before you move on from this vehicle to another.
Consider a Co-Signer
Having a co-signer can help you get a much better deal on your vehicle financing if you have bad credit. If you know someone with a good credit score and solid financial standing, their signature may get you a lower interest rate for your vehicle purchase. Keep in mind, however, that your co-signer accepts responsibility for the loan if you’re unable to pay for it. Make sure you’re confident in your ability to pay off the loan so they won’t have to take over the payments for you.
If you’re looking for a new or used car that you can purchase with bad credit, talk to our team at Hiley Hyundai of Fort Worth.