How to Get a Used Car Loan With Bad Credit

By Chad Buleen

  • Overview

    Having bad credit can affect several aspects of a person's life. One of the main obstacles that comes with bad credit is trying to figure out a way to get a used car loan. Because poor credit is not something that can be fixed overnight, there are some people who are in a better position now to pay than they ever were before, but the credit mistakes of their past still haunt them. Doing some of the things mentioned here can help a person get a used car loan with bad credit.
    • Step 1

      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.
    • Step 2

      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.

    • Step 3

      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.
    • Step 4

      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.
    • Step 5

      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.
    • Step 6

      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.
  • Skill: Moderately Easy
  • Ingredients:
  • Credit Report
  • Cash for a down payment
  • Tip: Run through the scenarios in you mind before you go to the dealership. There are plenty of car payment calculators online that can be used to help a person determine what she might be paying when different interest rates and purchase prices are calculated.
  • Warning:
  • Do not go over your head. If you have had problems paying on loans in the past, ask yourself what is different this time. A modest car for a modest payment might be best to help rebuild your credit by making it easier for you to make your payments on time.

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