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Christopher Konovalov
Christopher Konovalov

Can You Still Buy A Car With Bad Credit

Banks and other lenders are in the business of making money with money. That happens by lending to others and charging interest for the use of the funds. As with most things in life, relationships with banks and lenders get built on trust. Lenders typically trust prospective buyers with excellent credit ratings and a record for punctuality in paying their bills on time.

can you still buy a car with bad credit

The number one tip to getting the best car loan is knowing how bad your credit may be. Determining your FICO score is a good start, but it will result from your credit report.If you can live without a car in the immediate future, do your best to improve your credit score first.

These credit counseling agencies can help those with poor credit by consolidating payments at reduced interest rates. They can help you get back on sound financial footing sooner than if you continued to pay off your debt in a traditional manner.

A co-signer with good credit shows that others believe in you, so perhaps the lender should, too. If possible, check with a friend, relative, mentor, or someone else who will stand by you in this time of need.

Coming up with a down payment isn't always easy, though, so you may consider delaying your car purchase to save for a larger one. Doing this could make you a more competitive applicant, lower the amount you owe and help you lock in a lower interest rate.

After you get all your affairs in order and you're ready to apply for a loan, it's important to first do some shopping around. If you're having trouble getting approved for a loan from a conventional lender, take a look at lenders that are known for working with people that have lower credit scores. These lenders may offer loans at higher interest rates, but they help those with poor credit scores get approved.

As you search for the loan with the best terms and lowest interest rate, you may end up applying with multiple lenders. As previously mentioned, each time a lender checks your credit because you've submitted an application, a hard inquiry will be recorded in your credit reports. By applying with multiple auto lenders in the span of two weeks, however, these inquiries get grouped together into one.

Before you apply for a car loan, it's important to become familiar with the various borrowing options you may have. Some lenders offer loans to those with poor credit, but others may not. Knowing how each lender works beforehand could save you time and energy in the application process. Here are the most common types of auto financing:

First, when you apply for an auto loan (or multiple loans if you try with several lenders), a record of your application (called a hard credit inquiry) will be listed in your reports. This shows that a lender checked your credit reports as part of the application process. This record remains in a credit report for up to two years, but might not have any impact on your scores after just a few months.

For example, someone with subprime credit (which Experian defines as scores of 501 to 600) received an average rate of 11.33% for a new vehicle and 17.78% for a used one in the second quarter of 2020, according to an Experian report. By comparison, the average interest rate on a 60-month new-car loan was 5.14% during that same period, according to the Federal Reserve.

Getting a car loan with a credit score of 500 could be tough, too. The Experian report shows that only 0.37% of new-car loans and 4.35% of used-car loans issued in the fourth quarter of 2019 went to people with credit scores of 500 or lower.

Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. She has extensive knowledge of various insurance lines, including car insurance and property insurance. Her byline has appeared in dozens of online finance publications, like The Balance, Investopedia,, Forbes, and Bankrate.

While it may seem daunting to qualify for a car loan with a bad credit score (below 580), there is a large network of lenders and car dealers who are more willing to work with low- and bad-credit score borrowers. If all goes well and payments are made on time, it can help boost your credit profile.

You can check your credit report with each of the three bureaus through You can typically check your report for free once per year, but due to Covid-19, each credit bureau is offering free weekly credit reports until April 20, 2022.

If you already have a relationship with a bank or credit union, it might have a lower rate or special deal because it will want to keep or expand their services with you. Your financial institution can often assess your information easier or faster if your bank account is already with them.

Most dealerships will gladly offer financing on-site in order to sell a car faster, but some are more reputable than others. Dealers typically partner with banks and other lenders to do this. Be sure to read the fine print because some dealers will bury fees and offer expensive loans, especially if you have bad credit.

Bringing a friend or relative to a car dealership or bank to act as a co-signer is one of the most powerful tools you can have for getting a loan with bad credit and lowering the overall cost of the loan, such as a lower interest rate.

Do you have bad credit? Brand-new credit? If you do, getting a decent car loan can be tough. The good news is that with some guidance and a little patience, it should be possible to secure a fair car loan regardless of your credit situation.

You should start with your credit report to see how it would look to a lender. Run it at least three months before you plan on buying so you can take action on any outstanding items, recommends Rod Griffin, director of public education for credit reporting company Experian.

For example, if we use the average interest rate received by each group of borrowers with credit scores below 660, here's how those numbers work out in real life for a $17,000 used car with a 66-month auto loan:

Pro tip: Bring a copy of your credit report with you to the dealership. Having it available might help the dealership skip running your credit, which it would need to do to give you a ballpark idea of the approval you'll be offered.

Now it's time to get approved for a car loan. Make sure to seek approval from more than one lender. Because while your poor credit might bind you to a high-interest rate, some auto loan rates could still be better than others.

Also, check with your bank or credit union. It might be more willing to approve you since you already have an established financial relationship. You might also try an online lender such as Capital One, which offers auto loans for people with a credit score of 500 and up.

When it comes to deciding the car you're going to buy, it helps to understand that loan companies do not view all cars the same way. Imagine two $12,000 vehicles: The first is a 3-year-old economy car with 45,000 miles. The other is a 10-year-old luxury car with 120,000 miles. Although both cars have the same selling price, they are more likely to approve the newer car with fewer miles.

"Generally, if somebody has made good payments for 18 months, assuming the customer hasn't created new credit problems, then there may be an opportunity to get a lower interest rate," said Martin Less, president of Nationwide Acceptance, a lender that works with people in the nonprime market.

Here is a hard truth about buying a car with relatively new or bad credit: You'll likely need a down payment. Most banks will require "at least 10 percent down payment, or $1,000, whichever is greater," Less says.

Dealerships that regularly work with credit-challenged shoppers will know which lender will be most likely to approve your loan based on your specific situation. Just as all buyers don't have the same level of bad credit, not all lenders have the same requirements. A dealer might need to place a buyer with a recent bankruptcy with a different bank than one he'd select for a buyer who has a low score because of a recent divorce. A dealer who knows where to send a loan can be key in getting a shopper approved.

Pro tip: Don't be afraid to shop around for auto loans. Often, shoppers with bad credit will jump on the first deal for which they are approved, no matter how unappealing it seems. That's understandable, especially if you've been turned down a few times in the past. But just because you've gotten an approval doesn't mean you have to sign a contract that makes you feel uneasy. If the deal you're offered doesn't sit right with you, keep looking. The reality is that if one dealership can get you approved, chances are good another dealer can, too.

"The most important thing [borrowers] can do is keep communications going," Less says. "Let the lender know what the circumstances are, and lenders will generally work with the customers through temporary problems."

A number of new-car dealerships offer their credit-challenged customers the chance to trade into another vehicle without a significant increase in their monthly payment provided they've made a year's worth of consecutive on-time payments. While it may be tempting to get out of a Nissan Versa and into a Nissan Altima, for example, you will be adding more debt to your next loan.

If you've done your credit homework, shopped within your price range and made all your payments, you've not only improved your bad credit but also set up positive finance habits that will serve you well for years to come.

Getting preapproved is more significant than getting prequalified. Walking into a dealership with a preapproval sets a firm budget for your purchase. From there, you can search for vehicles that fall within your purchase limit and dealers will know you mean business. 041b061a72


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