Can You Buy a Car with Bad Credit?

It is possible to buy a car with bad credit, but you will be charged more for any financing you need in order to secure the purchase. Your credit score will be used to determine your interest rate. In fact, if your credit is low enough, you have difficulty even sourcing a loan. 

Why Credit Matters

Credit is a measure of how responsible you are with your debt and loan payments. Your credit score starts as soon as you are old enough to get your first credit card or loan. When you first get a loan, you will have a complete lack of credit history, and you will likely only qualify for a small limit loan. From there, you will build your score by making routine payments and growing the limits you can achieve. The credit system exists as a way for lenders to warn each other about your potential ability to pay the loan as well as the potential you will default. When you go to take out a car loan, the lender will be alerted to all of these factors because previous lenders will report them.

How to Improve Credit 

Damaging credit is as easy as missing a single payment. Rebuilding credit, unfortunately, takes a lot more time and a lot more work. The best way to rebuild credit is to start taking loans and paying them off. This is most likely to occur with a credit card initially, which is easier to secure than an installment loan like an auto loan. Taking an installment loan will help boost your credit much faster, however. As such, buying a car with bad credit is actually a good tactic to pursue in order to rebuild your financial status. 

How to Get a Car Loan with Bad Credit

Lenders will consider more than just your credit alone when they decide whether to provide you with the funds. Your income, character and general ability to pay will come into play. Provide an income statement in the form of a tax schedule or paycheck to the lender. You can gain character references from a landlord or business partner who can attest to your honesty in paying off debts. Finally, show your ability to pay by giving a large down payment and electing high monthly payments. This reduces the risk the lender is taking with the loan, making them more likely to provide you the financing and more apt to give you a good rate. 

What to Look Out For 

When you have bad credit, you should watch for some red flags. The fist is adjustable interest rates, which often rise astronomically after the initial entry period. You should also be aware of unfavorable loan terms, such as high fees for late payments or the ability for the lender to seize your asset without notice. Lenders who offer very fast financing for low credit borrowers often try to provide bad terms, so you should be most wary of these types of financing arrangements. By reading any contract in full, you will have a better understanding of potential pitfalls. 

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