Last updated on December 1st, 2022 at 06:54 pm
Do you need a car, but not sure if your credit score will get in the way when it comes to financing? Luckily, there are options available, whether you’re purchasing a car, or need to refinance the one you have now.
Let’s talk about how to buy a car with bad credit. And, yes, there is hope!
Need to Buy a Car With Bad Credit? Our Tips
First, Check Your Credit Score
Checking your credit score is the financial equivalent of getting a check-up. Perhaps you already have a general idea of what your score is, but knowing your exact score will help when it comes to applying to potential lenders. Oftentimes, with a little research, you can find the minimum credit score required for financing with various lenders.
Once you know your score, you will also know what interest rate you can expect based on that score. Unfortunately, interest rates tend to be higher for those with lower credit scores, but there are some steps you can take as you plan your car purchase.
Possibilities to Consider
Save for a down payment
If you have bad credit but can hold off on buying a car for a while, one possible consideration is to save up for a down payment.
The more money you can put down, the more lenders will be able to put their trust in you to pay off the loan.
In addition, putting more cash toward your down payment can mean you’ll be charged a lower interest rate on your loan. It’s a win-win situation if you can wait a bit to make your purchase, using that time to save.
And, let’s not forget, the time it takes to save for a down payment will give you time to increase your credit score. This will also help you get a lower interest rate.
Increase your credit score
Here are a few quick tips when it comes to increasing your credit score:
- Check your credit reports and scores, and correct any errors – Look for any accounts you don’t recognize or that show incorrect amounts owed. You can dispute anything that is not yours or isn’t correct.
- Pay down your debt – You should be using under 30% off your available credit if you want to look good to potential lenders.
- Avoid late payments – It goes without saying that you should make your loan and credit card payments on time. But, it’s more important than ever when you’re trying to establish or improve your credit score.
Financing Options With Bad Credit
If you need to purchase car as soon as possible, you are not totally out of options. Your choices may be more limited with bad credit, but luckily there are quite a few companies that will be willing to work with you.
So, if living without a car isn’t feasible because there’s no other way to get to work or you live in a rural area, you’ll likely find plenty of loans for bad credit borrowers available. And, nowadays, it’s easier than ever to find and compare your loan options.
Tips for Getting Your Loan Application Accepted
Though many companies are willing to work with you if you have bad credit, it’s still important to gather the documents that show you can afford your car payments.
- Proof of income – Having proof of your income is the first thing you’ll need. Lenders will want to see that you have a steady income even though your credit may not be up to par.
- Reduce credit usage – How much of your current available credit are you using? As we mentioned earlier, if you’re currently close to your limits on your credit cards, it’s a good idea to pay them down as much as you’re able to.
- Consider the loan payment amount – Look for cars that will have loan payments that are less than 20% of your gross monthly income. It’s important to consider this factor for your future financial well-being too. Car ownership is expensive, and you’ll need to take other costs into consideration, such as gas, maintenance, yearly registration, insurance, and potential repairs.
You Can Finance a Car With Bad Credit
Though it may feel like having poor credit is a major obstacle, today there are many companies that will work with you to reach your goal of financing and owning a car. With the ideas we’ve outlined, you should be able to find an option that works for you.How to Buy a Car With Bad Credit: A Few Tips | #personalfinance Click To Tweet
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