How to Get a Used Car Loan With Bad Credit

Know everything about your credit and be ready to explain it. Before a person even steps foot into an auto dealership, he should have viewed his own credit report and know exactly what is on it. Some auto dealers are more concerned about a person's ability to pay now than they are about credit problems five years ago. However, if a person is not able to explain the reasons for credit mistakes in the past, this makes it much more difficult to get a used car loan today.

Understand the limitations. Depending on how bad a person's credit is, there may be limitations as to where he can buy a used car. Used car superstores are often the place where most people with bad credit buy cars. This is usually the case because larger dealers have more financial ability to take on risks than smaller dealerships. In some cases, car payments will be made directly to the dealership instead of to a bank. Look for television commercials and newspaper ads from auto dealers who promote the fact that they want to work with those who have poor credit scores.

Be able to show you have changed. If the history on a credit report is not good, a person can show that he has changed. The best way to do this is to make timely payments on any outstanding loans, provide an active bank account and demonstrate proof of employment. A person who is trying to get a used car loan with bad credit who applies for a loan with recent debt collections on a credit report, an unstable job or a bank account in the minus will have a hard time getting a loan.

Bring as much cash as possible. A person who can pay a significant part of the purchase price of the automobile in cash is much more likely to get approved for a loan than a person who wants to buy for nothing down. Paying a couple thousand dollars in cash also shows the lender that the borrower is invested in the car, which makes him more likely to repay the loan if approved.

Expect a high interest rate--especially in the beginning. Unless a person's credit is completely shot, most auto dealers can find a way to get a person with bad credit a used car loan. However, just because the loan was approved, it does not mean that it will be a loan with good terms. Depending on how poor the applicant's credit score is, the interest rate could range anywhere from 12 to 24 percent. Obviously, the more interest a person needs to pay on his car, the less he can afford to pay for the car itself. This sometimes leads to people buying used cars that are not at as high in quality as they would have liked.

If all else fails, get a co-signer. If a person is not able to get a used car loan with bad credit, his last option might be to find a relative with moderate to good credit who will co-sign the loan. This means that the co-signer is also responsible if payments are missed. This should be a last resort option, especially considering the fact that it could lead to problems in your relationship with the co-signer if payments are missed.