How to Buy a Car With Bad Credit

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Not everyone has great credit. When you were younger you may have made some bad financial decisions that have put your credit score at a low number. As time goes on, it is possible to improve your credit and turn your ability to borrow money around. What do you do if you are still in that process and you need a new car? You may not be able to wait until you fix your credit to get one, so here is how to get a new car if you have bad credit.

Know Your Credit Score

Before you start the process of getting a new car, check your credit score. The reason for doing this is to know exactly what you’re up against and what your plan of action should be before you start the hunt for a new car. When you know what your score is, you can better understand what kind of loan you can get and for how much.

Doing a soft check of your credit won’t affect your credit score further. Many credit card companies offer this as a free service and with one click on your credit card app, you can know an estimation of what your credit score looks like.

Pay a Larger Down Payment

As soon as you know that you are going to need or want a new car, start saving for a down payment and save as much as you can. The larger the down payment for your car the less your monthly payments are going to be. When you don’t have a lot of money to worry about, you are more likely to get approved for a loan.

A lot of times, banks and other financial institutions will allow you to get a loan regardless of your credit history because the amount is so low, and there is less risk. The more money you can save and provide on your own for your car, the easier it will be for you to get a loan for the remaining amount.

Understand Your Finances

When you know how much you can save to pay for the down payment and how much you can then afford every month, you will be able to determine what car you can buy. Cars today have so many great features and so many new and wonderful things to explore that you are going to want to buy the latest model in your favourite colour, but can you afford that?

Don’t shop or buy outside of what you can afford because then you run the risk of defaulting on this car and then you will ruin your credit even further. Know your money, understand your finances, and start making smarter choices to correct your past mistakes.

Work With a Lender You Trust

Believe it or not, there are several places who will give out payday loans for bad credit to those who really need cash fast. Don’t feel as if you have to take the first loan that is given to you because you are in a bad spot. Shop around and talk to different lenders.

When you have low credit, whatever loan you get is going to have a high interest rate. As a result, you are going to be paying a lot of money when you pay back your loan. With that being said, shop around and find what loan provider will lend you the most money at an interest rate you can afford.

Find a Cosigner

A lot of times, those with bad credit or not enough money can get a new car with a cosigner. In other words, someone will sign their name to your car and take responsibility that the car will get paid off and paid off on time. A cosigner is a great idea because their credit is also on the line.

The best cosigners are those with great credit that are basically using their credit for you. Someone with good credit is going to want to keep their good score, so they will be on you at all times to ensure that you are making payments and you are making them on time. It’s great to have someone to hold you accountable to ensure you do this right.

Try and Fix Your Credit

If you have the time, try and fix your credit before you start the car buying process. Fixing your credit does take time, however, it is possible to secure a few extra points before you start shopping around. You can consolidate debt and owe money to one lender instead of several. If you can, pay off a credit card or two in order to show good credit history.

The rule of thumb is to never let your credit card debt equal more than 30% of your overall income. If it’s possible, try and pay down your debt so that it’s below that threshold so that your credit will improve slightly. The smallest effort can make a huge difference in helping you change your credit score for the better.

Get Pre Approved For a Loan

A lot of people will see how much the car is first then go to the bank for a loan, but what if you got approved for the loan first then went car shopping? If you are able to add a few points to your credit score and save a little bit of money, go to a bank and see how much you can get pre-approved for. If the amount is high enough, that may be enough or you can then look into other loan options.

Pre-approval will give you a great idea of how much money you are going to be able to get and that can determine how much of a down payment you should save up for so that you can get a car that you will be able to afford. Start inquiring at your local bank of what your options are and what your amount could be so that you can start planning.

Where You Can Get a Loan

There are several places you can go to for a loan and here is where you can check during your search:

  • The Dealership: this is known as captive financing. You buy the car from the dealership and you pay the dealership directly. They will approve your financing options and they take all the money.

The dealership may also arrange your financing for you with other lenders. They will broker the deal and give you several options to choose from. This is the best option for those with mediocre credit.

  • The Bank: this will be the hardest place to get a loan especially if you have bad credit. If the bank is lenient and does approve you for a loan, prepare for very high interest rates and very little room for mistakes or hiccups.

  • Online: There are a lot of online lenders who will approve you for a loan over the internet. Just be careful. There are a lot of scams that will steal your financial information and money could get stolen from you.

It’s not impossible to get a new car if you have bad credit. There are several options out there for you and with a little effort and the want to fix your score, you are going to have a new car in no time, and if you pay it off and make smart financial decisions, a car can boost your credit score.

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