Buying a Car With Bad Credit [Tips, Alternatives & FAQ]

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Are you in need of a used car, but your credit report is more messed up than your final grades in college? Are you just starting to drive and would settle for anything as long as it’s not a horseless carriage?

If you answered yes, you’ve come to the right place. In this article, you can read all about buying a vehicle despite having a poor FICO score. We’ll offer some tips, analyze the pros and cons of leasing and buying a car, and talk about whether you should opt for new or used vehicles.

Buying a Car With Bad Credit: Tips

Your credit history can put the brakes on many of your life plans – purchasing a car or a house, landing a perfect job, and more. This is because lenders evaluate your trustworthiness based on your credit responsibility. Nonetheless, we have prepared essential tips for getting a car with bad credit.

Check and Improve Your Credit

You should obtain credit reports from all three major bureaus – Experian, TransUnion, and Equifax. The bureaus will be sending free reports every week to all consumers through AnnualCreditReport.com by April 20, 2022, as part of a COVID-19 relief package.

Learn how to fix your score, then, after detecting potential errors on reports, consider undertaking actions such as paying off debt and removing negative items. Also, be aware that you have to think long-term since credit score improvement is a long and demanding process. Thus, make sure to pay bills on time and resolve any late payments. If you need further help check Credit Saint, as their service has helped many.

Be Aware of Your Budget

How to buy a car with bad credit depends on the amount of money you have under your pillow. Write down all your expenses in comparison to your income, and start saving. Moreover, stick to a loan you can afford, not to the largest possible.

Make a Large Down Payment

A bigger down payment will lower interests, taxes, and fees, thereby helping you get a slightly bigger loan. However, don’t forget our last tip: the point is to extend the selection of vehicles to buy, not to end up in debt. Do you know how much you should set aside for a down payment? Find out here.

Find the Best Loan and Get Pre-Approved

Look to your local banks and credit unions and ask them about their pre-approval process. You can use online tools such as loan aggregators to compare rates from several lenders. Once you find a loan, it would be most beneficial to seal the deal within two weeks. By doing this, the credit scoring model will probably record the transaction as a single hard pull, impacting your FICO score only temporarily.

If you’ve been given a red light for conventional auto loans when buying a car with bad credit, there are always second-chance car loans. The lender will offer you an option that is feasible to get approved for; however, you should find a reliable lender, so don’t forget to check customer feedback.

Find Bad Credit Car Dealerships

Gather all facts and customer experiences about various car dealerships, and attentively read any paperwork that a dealer puts forward. Usually, a dealer won’t insist on a credit score, but rather a stable job and regular monthly income.

Settle

People yearn for things they can’t have – that’s a tale as old as time. That being said, be realistic in your expectations. A brand new car with cool gadgets may be out of your reach for the time being. The more you improve your financial habits, though, the closer you can get to a pretty Maserati.

Be Careful

It is quite easy to become a victim of predatory loans when buying or leasing a car with bad credit. Make sure to avoid scams, and be cautious with buy-here, pay-here dealerships. Such places will offer immediate financing with no beacon score checking, but they often sell poor-quality vehicles at a way higher interest rate.

Get a Cosigner

A cosigner is someone with a good to excellent credit score who applies for auto loans with you and; this person is equally responsible for paying off the debt. Since life can be unpredictable, be sure to check out what happens with a loan if a cosigner dies.

Think About Refinancing

This is a process of replacing the terms of your credit agreement when an opportunity arises to make favorable changes concerning the interest rate. Once your creditworthiness makes a U-turn, you can either reduce your payments or the loan duration used to buy a car with bad credit.

DID YOU KNOW? Struggling with the digits on a credit report is more frequent than you think. Roughly 11% of Americans have a FICO score below 550, while 34.8% have a fair score ranging from 580 to 669. In other words, the suboptimal credit score is a harsh reality for the 45.8% of the U.S. population. Check out our list of credit repair companies, and don’t let low credit scores deter you.

Key Takeaways

1 Beating your brains out about how to buy a car with bad credit? Cleaning your credit report up and boosting low credit scores can increase your odds of being approved for a loan on good terms. This can also help you refinance the loan later on.
2 When deciding whether you should lease or buy a car, bear in mind that even though you could get a nice and brand new model through a lease, this doesn’t mean that car ownership is on the table. Buying a car may seem more expensive, but your remaining value will be greater.
3 If you decide to buy a car rather than lease it, you have to then figure out whether to buy a new or used one. When it comes to the likelihood of a pre-approval, new cars for people with bad credit are almost out of the question. Used cars come with unreliable vehicle history reports, which might make lenders hesitate. Nonetheless, used cars are much cheaper, and you can obtain a way better model this way.

Leasing vs. Buying a Car With Bad Credit

The main difference between leasing and buying a car pertains to car ownership. A car lease amounts to a rental agreement specifying the number of miles and months or years during which you can use a vehicle. On the other hand, a car loan presumes that you will be the only owner. If you are wondering how to choose between buying or leasing a car with bad credit, spare us a minute of your time and check out the table below.

Leasing Buying
1 Lease installments are usually cheaper than loan installments. Leases come with a bunch of fees, whereas you can get a loan with fixed interest rates.
2 You can get a better car model with a lease that you couldn’t afford otherwise. This will increase the monthly payment, but it would still be cheaper than buying since it is based on residual value. With a lease, you have to pay for routine maintenance, repairs, and insurance as if you own the car…except that you don’t own it unless you buy it. As an owner, you can consult auto insurance companies that don’t do credit checks.
3 Warranty protection is available for up to three years or roughly 36,000 miles. After the leasing period is over, you can switch to another set of wheels. There is an annual mileage restriction when you opt for leasing, whereas there is no such thing for the bought car. Besides, you can sell it or trade it once the loan regarding cars for bad credit is paid off.
DID YOU KNOW? According to Experian’s report, the average monthly lease payment for a new car is $476. On the other hand, the average monthly loan payment is $568. Only one Benjamin makes a difference between driving your own car and merely borrowing one.

Buying a New vs. Used Car 

One of the principal dilemmas people face is choosing between a new and used car. Both options have clear advantages as well as some drawbacks; since our mission is to clear any misconceptions and help decide what meets your needs, we will provide you with a neat comparison of the two.

When figuring out how to get a car with bad credit, the first thing that comes to mind is to go for a used one. The price is way lower, which means you can avoid long-term loans. You can also end up with a nicer model, which would be out of your reach had you decided to purchase a new vehicle. Finally, a depreciation hit will be minor. In other words, when you buy a car, its value starts to decrease over time. In the case of a used car, the previous owner has suffered the consequences of depreciation rather than you.

The disadvantages of opting for a used car with a bad credit are worthy of notice as well. First and foremost, despite getting a report on a used car’s history, you can never be 100% sure that the report is accurate and exhaustive. The fact that you’re getting somebody’s leftovers is closely intertwined with the previous disadvantage—there are usually good reasons why someone decides to ditch their vehicle.

Typically, you won’t get any warranty, so damage will be on you to cover. Bear in mind that some auto parts cost a pretty penny and that you may end up thinking about reselling the car due to the additional financial hardships in the future. To avoid this, consider purchasing an extended car warranty, you never know when you’ll need it.

Purchasing a new car means that you will have to get used to a high monthly loan payment, given that the average estimated price for a new vehicle was $40,857 in January. However, you can get a warranty, which can save money in the long run, and be profitable when buying a new car with bad credit. You will also be forced to make your purchase at the franchised car dealership, which means that bargaining is off the table.

Still, in this way, you have access to factory-fresh vehicles with no history or previous damage. This is all the more important since lenders assess the risks of granting you a loan. The more uncertainty surrounding the vehicle’s state, the more likely it is that you will be rejected for any auto loans.

DID YOU KNOW? COVID-19 has produced an increase in used car purchases. This is because people avoid mass transportation or carpooling, preferring a private car due to social distancing and fear of contagion. However, this trend is pronounced among 18-35-year-old U.S. citizens, which are ironically the population typically interested in how to get a car with bad credit.

Conclusion

Many things are clipping your wings, with a poor FICO score being one of them. This means that every big step in your life is more challenging, such as finding and buying the right car. However, our ambition was to show you that flying is still a viable option. That is to say, our tips for buying a car with bad credit are here to help you out. Consider all details about the leasing vs. buying dilemma carefully, and be sure to digest all pros and cons of new and used vehicles before setting off to find a carriage.

FAQ

Can you buy a car with no credit?

Yes! You can buy a car even though you have no credit whatsoever., although you’ll have to deal with lenders and credit unions offering loans on unfavorable terms. Besides, it would be beneficial to find a cosigner and stable job allowing you to make a significant down payment and secure approval.

How can I get financed for a car with bad credit?

There are numerous available options for borrowers like you. Besides auto loans offered by banks and credit unions, you can try your luck with buy-here, pay-here dealerships and bad credit car dealerships. Buying a car with bad credit is not at all impossible, but be on alert for scams.

What is the lowest credit score to buy a car?

A subprime credit score is deemed as being under 580. For lenders, this means that you will have considerable difficulties paying off debts, so they tend to charge you higher interest rates. Luckily, you can have a poor credit score—or even no score—and still be able to purchase a car, albeit at a price.

ABOUT AUTHOR

I learned a lot about finance after working for a digital marketing company specializing in investing and trading stocks, forex, etc. After that, I got exposed to other verticals such as wealth management and personal finance, which further improved my understanding of the financial world.

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