Many of us have been there before. You want a car—perhaps you need one—but you have bad credit. What should you do?
At first, the situation might seem overwhelming, but you don’t have to worry. There’s a solution. That’s why our team at Fred Beans Used wrote this article.
Here’s your complete guide to financing a used car with bad credit.
Credit Score Breakdown
Let’s start with a look at what type of information determines your credit score.
- Payment History (35%) – the more often you pay your bills on time, the higher your score will rise.
- Amounts Owed (30%) – the less you owe, the better your credit will be.
- Length of Credit History (15%) – consistently maintaining a line of credit over time is an important factor.
- Mix of Credit (10%) – car loan, mortgage, credit cards, etc.
- New Credit (10%) – opening multiple new lines of credit in a short period will damage your reputation with lenders.
Bad Credit and Automotive Financing
Here’s the simple fact of the matter: the worse your credit score, the less eager lenders will be to give you a loan.
That’s because a low credit score indicates that you’re less likely to pay them back on time, if at all.
With that in mind, we need to develop a few strategies to give you the best chance of finding an auto creditor that’ll give you the affordable rate you need.
How to Secure Financing with Bad Credit
Step 1: Know Your Credit Score. You can check with either Equifax, TransUnion, or Experian.
Step 2: Shop Around. Check with the dealership, your local bank or credit union, and other sources.
Step 3: Follow the Two-Week Rule. Apply for all loans within a two-week timeframe as the credit reporting agencies will group all these inquiries together. That way, you’ll limit the negative impact to your credit score.
Step 4: Consider a Shorter Loan Period. Although your monthly payments will be higher, you won’t have to pay as much interest over time. This is especially crucial for drivers who are buying a used car with bad credit because your interest rates are liable to be higher.
Step 5: Consider a Newer Vehicle. This might seem counterintuitive—that’s because it is. Per John Ulzheimer, one of the country’s leading credit experts, found that newer used models can charge lower interest rates than older ones. Go figure!
Step 6: The Power of a Cosigner. If a friend of family member trusts you, they can cosign the loan with you. This will encourage dealerships and banks to trust you, too, because somebody with better credit is agreeing to cover the payments if you’re not able to.
Bonus Tips – What to Avoid
Above all, here are two things not to do while shopping for a used car. Don’t decide on financing before you’ve checked all your options, and don’t sign anything without first reading it and thoroughly understanding it.
Contact Us at Fred Beans Used to Learn More
If you’re interested in financing a used car, but you have bad credit, it’s not a problem!
Just call us at Fred Beans Used today to discover how we can help.
You May Also Like: