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How to Purchase a Car with Bad Credit

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If having bad credit is what troubles you, here’s the good news. Even though a higher credit score increases your chances of being approved for a car loan with better rates and terms, there are still possibilities for those with poor credit. Continue reading to find out how to get a car with poor¬†credit.¬†

how to get a car with bad credit

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

With a poor credit score, you may not be qualified for all the loans. But by carefully considering the points mentioned below, you can increase your chances of getting the right loan.  

Check your credit

It is always advisable that you check your credit score before planning to shop for a car loan. Doing so gives you an idea of what to expect from a lender. It will be worth enough not to rush on making a car purchase as this will give you time to improve your credit score.  

Credit Type Credit score Average APR for a new car Average APR for a used car 
Superprime 781-850 3.46% 4.18% 
Prime 661-780 4.53% 6.03% 
Nonprime 601-660 7.07% 10.83% 
Subprime 501-600 10.25% 17.35% 
Deep subprime 300-500 13.34% 20.93% 

Save for a down payment 

Most car purchases require a down payment. The larger the down payment for a car, the smaller the loan amount and the lower the monthly payments will be. Further, a larger down payment minimizes the lender’s risk, which could result in a cheaper interest rate and greater savings throughout the life of the loan.¬†¬†

However, saving up enough money for a down payment is not always simple, so you may want to put off buying a car until you have saved up enough money. Making yourself more marketable in this way will help you get a better interest rate and pay off your debt faster. 

Determine how much you can afford 

When purchasing a vehicle, there are two primary factors to consider: the down payment required and the ongoing maintenance and insurance costs. An essential first step in car shopping is calculating your monthly payment, which includes the loan payment, insurance, gas, and maintenance. The down payment and the monthly payment will increase in proportion to the vehicle’s price.¬†

Assess your debt-to-income ratio 

Financial institutions will consider your debt-to-income ratio, which indicates your monthly debt obligations divided by your gross pay. If your debt-to-income ratio is over 45% to 50%, loan providers may view you with suspicion. Therefore, be prepared to provide proof that you have paid off accounts and have less debt than what is shown on your credit report. 

Avoid opting for ‘Buy Here, Pay Here’ deals¬†

Some car lots provide “buy here, pay here” financing, often known as “no credit, no problem” or “we finance” agreements, to customers who may not have excellent credit. People with bad credit can get loans from these institutions, but they typically come with higher interest rates. Paying off your loan early could incur fees, interest, and penalties. ¬†

Get a cosigner who has a good credit  

If you don’t have the required money to make a huge down payment and you have poor credit, get a cosigner. A cosigner should be your friend or relative with very good credit. Doing so increases your chances of getting a loan with a low-interest rate. ¬†

Choose less expensive cars  

Another good option is to improve your credit by purchasing a less expensive car. For less expensive cars, the purchase cost will be low, hence the monthly payments. By keeping up-to-date with your payments, you can improve your credit and hence you can later purchase a costly one. 


Price negotiation  

When shopping for a car loan, many consumers place a premium on low-interest rates and affordable monthly payments. However, the car’s purchase price is the single most important component in establishing the final cost of the purchase. Your ability to negotiate a lower price with the dealer can save you substantial money in interest payments over the loan term. Don’t go into pricing negotiations with the dealership without your preapproval letter.¬†

Refinance your car later 

Getting a loan from a dealership at a high-interest rate does not mean you will have to make the payments until the loan term ends. You can refinance your car after making payments for a year or more. By doing so, your monthly payments get reduced. 

Shop around 

Shop around across various lenders to receive the best terms and rates. If you are denied a loan from a bank due to a low credit score, look into alternative lenders. 

Various lenders who offer loans for you are: 

  1. Online lenders  
  2. Car dealerships 
  3. Banks and credit unions 

Walk away from the wrong lender 

If the lender who is ready to offer you the loan does not provide the best rates and amounts as your requirement, you have all the right to walk away. However, just because they are ready to offer you a loan does not mean they are right for you. 

Bad-credit auto lenders 

Lenders Minimum credit score Estimated APR Loan amount 
Consumers credit union 620 4.24-21.74% $7500-no maximum 
Carvana 450 4..4-28.4% $1,000-$100,000 
myAutoloan 575 4.44-21.5% $8,000-$100,000 

Bottom Line 

Getting a car loan with bad credit is possible, but the rates may be high. If you take measures to boost your credit score before going automobile shopping, you can save yourself some money. Consider purchasing a used car that is affordable and suits your demands for less money out of pocket if you cannot put off your purchase any longer. With time and responsible loan repayment, you may be able to refinance your auto loan at a lower interest rate. 

how to get a car with bad credit

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