Can You Buy a Car With a Bad Credit Score?

Yes, it is still possible to purchase a new car with a bad credit score, because there are a number of options such as using a cosigner, getting help from your credit union, using buy here, pay here (BHPH) or paying a higher interest than average. If you have been turned down for a traditional…

car finance

Yes, it is still possible to purchase a new car with a bad credit score, because there are a number of options such as using a cosigner, getting help from your credit union, using buy here, pay here (BHPH) or paying a higher interest than average.

If you have been turned down for a traditional auto loan or financing because of a poor credit score (under 500 or 300), you may feel that there are not many options available. But this is not the case, there are a number of alternative finance options and there are dealerships and lenders who identify that the bad credit market is large one (around 16% of Americans have bad credit) and therefore they should be able to cater to their needs.

In practice, you do not even need an auto loan if you have cash to buy a car in full or upfront. So if you are buying a second hand car or vehicle that you can afford outright, you can just buy the whole thing without having to go through credit checks. In fact, a lot of magazines and newspapers advertize the selling of cars independently and paying in cash – so this could be an option.

What Are The Options To Buy a Car With Bad Credit?

Traditional Auto Loans

Using an auto loan is like using a personal loan and then it is used to purchase the car, with monthly interest payments charged. This can be arranged with an auto loan provider and once approved, the money is based onto the dealership. Or you can apply with the dealership directly who manage this for you. Be sure to double check the terms and compare the rates of both options to avoid being overcharged. Car dealers overcharging me? Never in a million years!

The interest rate varies depending on your credit score, where typically the better your credit score, the lower your rate because you are deemed as less risk. Of course if you have bad credit, you are considered a greater risk of defaulting and therefore the interest rates are much higher – so whilst you can certainly be approved, the average rates can be high.

Credit score rangeNew carUsed car
Deep subprime: 300 to 50015.62%21.57%
Subprime: 501 to 60012.85%18.97%
Near prime: 601 to 6609.62%13.72%
Prime: 661 to 7806.89%9.04%
Super prime: 781 to 8505.38%6.80%

Auto Financing

There are numerous auto financing options which can appeal to people with different levels of income, budget and credit score including:

  • Leasing – paying a monthly fee
  • Lease-To-Own – paying monthly with the option to buy at the end
  • Balloon Payment Financing – paying monthly with a big balloon payment at the end to own the vehicle
  • Personal Contract Purchase (PCP) – paying a down payment, monthly fee and option of a balloon payment at the end

As someone with bad credit, you may prefer to lease a vehicle and pay a monthly fee, with no long-term intention to buy and own the vehicle at the end. It is always important to negotiate to get the best rates and to never take the first offer. Depending on how poor your credit score is, the dealer or lender may require a down payment of 10% minimum to help you get approved.

You don’t need to use finance per se to buy a car. A lot of magazines and newspapers have sellers who advertize their cars independently and you can pay in cash. If you do not have the cash, you can look at all the different finance routes below.

Daniel, Pheabs founder

Dealer Arranged Financing

A common approach for people looking for an auto loan with bad credit is that the dealer arranges the finance for you. This is very popular because you go straight to the dealer, find the car you want and they arrange the finance and terms for you afterwards. This is useful, because they are well connected, but they often receive commission from the sale, so the terms may not be favorable and could certainly be cheaper elsewhere – so do not be shy to negotiate, shop around and not always take the first offer.

Using a Cosigner

A cosigner is someone you know who agrees to cosign the loan agreement and cover payments if you cannot. It is very helpful for people with bad credit because it gives you extra credibility and trust with a lender, assuming that the cosigner is someone older, with good credit and has a stable income.

Cosigners are used for personal loans, mortgages and also cars too and this can be an option for you too. It is not one that is always advertized, but you can certainly speak to your dealership about this and see if it is available.

cosigner loan pheabs

You could purchase a car with the help of a cosigner

Banks and Credit Unions

If you have built up a good rapport with your bank or credit union for 10 or 20 years, they could offer you an auto loan, if this is a product they offer. For people with bad credit, this may not be so obvious, but if you have repaid your bank or credit union for your personal loans, ca

Buy Here, Pay Here (BHPH)

With buy here, pay here, the lender purchases the vehicle themselves and owns it and you almost ‘rent’ it from them. Whilst this can help you get a car and is available for people with poor or no credit scores, there are some limitations, such as limited cars available, a down payment is required and the interest rates are high.

Do These Quick Things To Improve Your Credit Score

Whilst there are options for people who want to buy a car with bad credit, the reality is that boosting your credit score is the best medicine. There are some quick things you can do to build up your credit score.

Check your credit score – Around 18% of Americans don’t even know their credit score and if you know that you have bad credit score, its time to assess the damage. Using a free checker or free trial to see what you score is – you can also request a free one from the US Government. Once you know the score, you can take steps to improve it.

Get rid of cards you don’t need – You may find that you have built up credit cards and score cards over the years, but these can hurt your credit score because it looks like you have access to a lot of credit, even if you don’t use it. So if there are cards that you haven’t used in years, just close them.

Disassociate from someone with bad credit – If you have a joint account, mortgage or credit card with someone with bad credit, you are guilty by association because lenders assume that you are helping them out. Simply going solo can give your score a boost or help you down the line when you are trying to get approved for a loan or car financing.

Use builder cards – There are credit cards designed to help you pay back on time and build up your score. You can technically also use payday loans to build you your credit score, but this is not advised.

Last Updated on June 13, 2024 by Daniel Tannenbaum, Founder of Pheabs

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