Is it possible to buy a car with bad credit? During these economic times, the rich are getting richer and the poor and getting poorer. Many people are in a catch-22 when it comes to employment and making money. You need a car to get a job, however, how can you get a car if you don’t have a job? The longer you are in debt, the higher probability that you are going to miss a credit card payment. The more credit card payments you miss, the lower your credit score becomes. Having bad credit affects so many areas of your life. If you have bad credit, then it’ll be hard to buy a car. However, since everyone car dealerships have been hit hard by this recession, your bad credit score might not be as bad as you think it is. Be smart about your future car purchase and your bad credit score will not impede your quest for a new vehicle.

First, do you know how bad your credit report is? The first thing before finding a solution is to look at the root of the problem. Perhaps your credit report is not as bad as you think it is. The more you know about your credit report; the better off you will be when dealing with financing options. Don’t get ahead of yourself though, if you know your credit score sucks, then you’re going to have a hard time finding financing for a car. Everyone should know their credit score and if you don’t, there are many resources for you to figure out just how bad (or good) your credit score is. Credit laws allow every consumer to get receive one free credit report a year through Experian. However, if you’d like to see your credit report at various times on the year, you can always sign up for numerous credit card report companies on the internet. Most of these companies have a recurring subscription and charge around $20 a month. A FICO score is what lenders review (among other factors) to determine whether or not you are eligible for a loan. The top three credit bureaus are Experian, Equifax, and Transunion. If you receive the 3 in 1 reports, you will notice that your credit score will be slightly different for each company. Do you think it’s really worth paying $20-$30 for a credit score? You might think to yourself, “it’s not worth that much money to know a few numbers”. In reality, here’s how “investing” in $30 will save you hundreds in the long run. For example, if you do not have your credit score with you, the car dealership will run a credit report on you and say you quality for a 8.7% loan. However, this might not be the case, the dealer might be lying to you and you actually qualify for a lower interest rate based on your true credit rating. Say you actually qualify for a 7.5% loan and are financing $24,000, if you pay off your loan based on your loan schedule you would have saved $288 if you checked your credit score and received a lower interest rate. What is considered a bad credit score? Generally anything below 630 will decrease your chances of receiving a favorable rate. If your credit score is around this range, don’t fear, at least you know your situation and will know what to do when trying to purchase a car. There’s no way to beat around the bush, if your credit is bad, you’re going to end up paying interest rates in the double digits, but hey, at least you’ll have a car!

So what are the effects of having a bad credit score when purchasing a car? The most important thing is how bad credit will affect your financial situation. There is an inverse relationship between your credit score and interest rates. The lower your credit score, the higher the interest rate you’ll have to pay on any loan. Additionally, if you are not confident about your credit score, the car dealer might think that they have a competitive advantage over you and might use this leverage to put you in an unfavorable loan. Hence, the more you know about your credit, the better off you’ll when going to the dealership. Remember, you ultimately are putting down the money for a car and you should be in control when purchasing a car from the dealership. If you feel like you’re being bullied by the dealer, then all you have to do is simply walk away and find a dealer that you are comfortable with.

Other factors that will affect the lender’s loan decision are your monthly income and other credit history such as delinquent and closed accounts. Generally, if your accounts are delinquent, lenders will be more lenient; however, closed accounts will severely affect your chances of obtaining a loan. The first step to obtaining a loan is actually going to your local lender and applying for a loan. You will figure out quickly whether or not you actually qualify for a loan or whether you need to take other measures (hopefully not to drastic). First of all, if possible, try and get financing outside the dealership as you will probably get a more favorable rate and won’t have to deal with the mind games and tricks that a dealer while play with you. Another benefit of applying for loans with financial institutions and banks are that you can typically apply for a loan online, which is great if you do not have the time (or the gull) to go into a lender’s office. Try applying online at websites such as Capital One Auto Finance and see if you’re able to obtain a loan (who knows, you might get lucky!).

If you absolutely can’t obtain a loan from a bank or outside lender, then dealer financing will be your only option. Dealers are harder to work with, but are more lenient than some financial institutions. Also the type of used conversion vans that you are trying to purchase will become a factor in financing. The bigger the auto dealer, the better chance that you’ll have obtaining a loan. If your credit score is extremely bad, let’s say within the mid 500 range, than trying to obtain a loan from your car dealer is probably your only choice. All is not lost however, even if you have bad credit, you might not have to stick with the same high interest rate for the entirety of your loan. Once you build up your credit score again, you can try and refinance your bad credit loan and receive a more favorable interest rate. Most major auto dealers have car financing companies. For example, Infiniti dealerships will probably use Infiniti Financial Services as their financing institution. Your best bet is to find a car for sale by owner and see whether you can obtain a loan from a friend or a bank. Good credit customers have more leverage than bad credit customers and lenders definitely know this and will use this as leverage when dealing with you. Be very cautious and perform research about the auto dealer before even thinking about your car preference.

Let’s go back and recap what we’ve talked about and the steps you need to take when you have bad credit. First, you need to obtain your FICO score by either purchasing your credit report or by getting your annual FREE credit report. Either way, you’re going to need those three numbers before you even consider purchasing a car. Next, try and apply for loans online through auto financing companies such as Capitol One Auto Finance. If you can’t get financing from an outside dealer (meaning not from the dealership), then you’ll have to go to a reputable dealership and try and obtain financing from the dealer.  Lastly, if your wife has a business, maybe you can try obtaining a small business loans for woman grant. 

Here are the steps and things you need to look out for when getting financing from a dealership. Remember, even if you obtain a bad credit, high interest loan from the dealer, you can always refinance in the future when your credit situation is a little better. If and when you do purchase the car, make sure you read over the contract and that everything is signed and sealed before you leave the car lot. Do not leave dealership until you know for sure that your contract is signed and all terms have been reviewed and dealt with. Before signing the contract, make sure you know what types of interest rates that you can obtain with your current credit score. Bring your credit score with you and ask the dealer what score they came up with when determining the interest rate. Know the financial market and negotiate the rate if you feel like the dealer is adding on a few point (because they probably) will. Using websites such as MYFICO will allow you to calculate what type of credit you will receive based on your current FICO score. Also, before signing the contract, make sure to read the contract and determine whether the interest is pre-calculated and whether any additional fees are added. If your interest is pre-calculated, then your monthly payments will go towards interest and not toward principal. Dealers will try and do this to people with bad credit. If you’re financial situation becomes better and you want to pay off your loan early, and then make sure there are no pre-payment penalties attached to the loan. However, beggars can’t be choosers, so make sure there is more than one dealership that will give you financing. Now that you have this information, you will be able to buy a car with bad credit.