Buying a car with bad credit or a low down payment can seem impossible, but with a little research and preparation, it’s possible to find the right vehicle and financing to fit your budget and needs. In this blog, we’ll discuss some tips for buying a car with bad credit or low down payments.
1. Check your credit score
Before looking for a car, you should know your credit score. This will help you determine what financing options you will likely qualify for. You can obtain a free credit report once per year from each of the three major credit bureaus – Experian, TransUnion, and Equifax. You can also check your credit score for free online through services like Credit Karma or Credit Sesame. If your credit score is below 500, you’ll have trouble getting approved for traditional financing options but there are still options. You can be approved for an auto loan even with a 0 credit score
2. Determine your budget
Once you know your credit score, you’ll need to determine your budget for the car. This includes not only the price of the vehicle but also down payment and monthly payments. Some dealers will finance taxes and registration costs, and others will require you to pay them up front. You’ll need to ensure you can also afford the monthly payments on the car. Use an online calculator to determine how much you can afford based on your income, expenses, and debt. Be wary of dealers that offer very low monthly payments as the loan terms can be unfavorably extended leaving you upside down on your loan for years. Shorter loans allow you to sell and trade out more often. They can also save you thousands on interest.
3. Shop around for financing
You’ll likely need to shop around for financing options if you have bad credit. Start by checking with your bank or credit union to see if they offer auto loans. Consider working with a subprime lender such as a reputable Buy Here Pay Here dealership. These dealers work with people with bad credit and may offer more flexible terms than traditional lenders
4. Consider a co-signer
If you’re having trouble getting approved for financing, consider getting a co-signer. A co-signer is someone that agrees to be responsible for the payments on the car if you’re unable to make them. This can help you get loan approval with better terms and interest rates
5. Look for cars that fit your budget
Once you’ve determined your budget and financing options, you’ll need to look for cars that fit your needs and budget. Consider buying a used car instead of a new one. Used cars are generally less expensive and may have already gone through the initial depreciation period.
6. Verify the car was inspected
Before you buy a car, verify a reputable mechanic inspected it. If the dealership does not have its own repair shop, you can take the vehicle to a mechanic you trust. This can help you identify any potential issues with the car and avoid costly repairs down the line. If the seller doesn’t allow you to have the car inspected, this may be a red flag and you should consider looking for a different car. Make sure the dealership offers a warranty. SOme warranties are very short and only cover major powertrain components. Other dealers offer extended service contracts that can cover breakdown expenses for years after you purchase.
7. Read the contract carefully
Once you’ve found a car and secured financing, make sure to read the contract carefully before signing. Ensure you understand all the terms and conditions of the loan, including the interest rate, monthly payments, and any fees associated with the loan. Some subprime lenders will approve customers with credit scores below 500 but can have hidden fees. Ask for an explanation of any charge or fee you do not understand.
8. Make your payments on time
Finally, once you’ve bought your car, it’s important to make your payments on time. This can help improve your credit score over time and make it easier to secure financing in the future. Consider setting up automatic payments to make sure you don’t miss any payments.
In conclusion, buying a car with bad credit or a low down payment can be challenging, but it’s possible. With the right dealership, it can be a great experience.