Buying a Car with Bad Credit

By Zac Estrada
Last Updated 05/14/2015

A car is a symbol of freedom and not having one can make you pretty restricted in some cases. It could mean losing the ability to attend school or get a better job, and it could make it more difficult to live in an area where there are few transportation alternatives.

But when you don’t have good credit, it can be hard to get financing on a car. And even when you do, the terms may not be in your favor, which means you may end up paying for a car you really don’t like for a really long time. That’s a bad situation to be in. So if you absolutely need a car and have less-than-stellar credit, here are some things to consider before you sign on the line.

Do You Really Need a Car?

Really think about why you’re getting a car and what kind of impact that will have on your finances. Besides the monthly payment, consider registration and insurance, fuel and maintenance and possibly parking fees, depending where you live. There’s more to buying a car than the negotiated price, and it’s important for you to determine how much car you can afford before you start looking around.

Understand Your Options

A five-year loan is already kind of pushing things, especially on a used car. Do not get pushed into some of these long, long finance terms (84-month loans are a thing now) and understand your credit situation. If you go for a longer loan, keep in mind that you’re going to want to pay it off sooner than the term because it makes little sense to keep paying for a vehicle that’s long out of warranty.

Worth noting is that some automakers offer deals for first-time car buyers on some of their certified pre-owned vehicles. Recent college graduates and first-time buyers may qualify for better rates than others who have bad credit or no credit. While these deals may lower your interest rates or give you some cash toward a down payment, they won’t help you make the payments in the long run.

Get lots of Price Quotes

If you’re looking to get a good deal, start with a fairly common, mainstream model. That way you should have a chance to compare lots of similarly equipped models and get the best possible price. Then do some research on the best rates from lenders. Don’t ignore what the dealer you buy your car from has to offer, but research other banks and credit unions that could give you a better rate on whatever you need to finance. Investigate which lenders may require a cosigner, some other form of proof of income or whatever you need to prove you can afford the car. In short, figure out some different routes toward paying for your car.

Make the Biggest Down Payment Possible

Ultimately, you’re going to be better off putting as much cash down as possible when you finance. That is the key to getting your payments lower, which means they’ll be easier to meet should you have a change in expenses. It also improves your chances of getting the best-possible interest rate from your lender.

Do You Really, Really Need this Car Now?

The best plan of all is to take steps to improve your credit before you plan to buy a car. Consider waiting and paying down your debts and credit card balances, as well as saving up enough money to pay for as much of the car upfront as possible without having to finance the whole thing. Defaulting on a car loan is a big deal and many subprime lenders prey on people who buy much more car than they can actually afford.