Car Buyer Labs

Car Buying Advice, Tips, and Reviews

A man is at a dealer buying a car.

Getting an Auto Loan with Bad Credit

Having a car is a necessity for many people. Whether it be your only way to get to work, to get the kids to all their activities, or because you need to do a lot of traveling. In many cases, not having a way to get around can put you even farther in a financial hole by preventing you from getting to work or finding better jobs with longer commutes. Buying a car can get expensive, though, and not everybody has the best credit. This shouldn’t automatically deter you from looking. Many dealerships can provide an auto loan with bad credit so long as you’re willing to negotiate with them. All it really takes is a willingness to take what’s available while knowing what will work best for your needs.

How Does It Work?

The specifics of any loan are dependent on the dealership you are purchasing from, but many dealers work to have good relationships with banks and other lenders that will work with them to find an appropriate arrangement for people with poor credit. Many banks give certain dealers exclusive rates to make sure they can offer affordable plans to individuals with low credit. From there, the process is the same as purchasing any other vehicle.

Do I Need a Cosigner?

Having someone to cosign your loan does increase your chances of getting a better rate, so long as they themselves have decent credit, but it isn’t necessary for many car loans set up to assist those with bad credit. If you’re a new buyer with little to no credit history, it may be advisable to have someone cosign with you to validate your ability to maintain a payment schedule. Generally, as long as you have some credit history, a dealership will be able to find a plan that works for you.

A couple is signing paperwork for a car they were able to get through an auto loan with bad credit.

What Kind of Cars Can I Look For?

As you can imagine, you’re not likely to get a car fresh off the factory line when trying to buy with bad credit. That doesn’t mean you can expect something borderline un-drivable, either. Since this is a specialty-type sale for many car dealerships, they tend to go out of their way to ensure you’re getting a decent deal. They don’t see it as an excuse to peddle junk, but to create a continuing relationship for when you’re ready to purchase your next vehicle. Yes, odds are you’ll be looking at some used and perhaps even “old” vehicles to start off, but these will be the means in which you’ll be able to improve your standing. As time goes on and your regular payments inject a much-needed boost to your credit, you’ll be better positioned to upgrade and continue to grow. After all, the main function of a vehicle is transportation and not style. These loans are designed to get you on your way, not to trap you in a rust bucket that you can never get rid of. In fact, it’s often quite the opposite situation (as we’ll discuss in the next section).

Be sure to be open with what your needs are, don’t just go with what you think your best option is based on price and definitely resist jumping at the first offer. Talk to the salesperson about what you need your car for and how often you’d be using it, and they’ll gladly work with you to find the best fit under the circumstances. Many dealerships have a wide range of options, and can often find more than what is on their lot through sister-dealerships, etc. Just because you’re in a bind doesn’t mean you have to settle. It’s still a large financial decision, and making it hastily could only serve to exacerbate things further on down the road.

What Does the Dealer Get Out of It?

A little bit of suspicion is natural to creep into someone’s mind when looking into making a deal based on bad credit. ‘Why is the dealer so eager to sell me a car under these circumstances?’ Well, for one thing, a sale is a sale. Moving cars is the main point of the automotive industry, and anything that aids in reaching that goal is great for business. It’s also a great way to move cars that might not be as appealing to those who can extend themselves a little further. If there’s one thing most lots have, it’s an overabundance of inventory. The more often they can refresh or replenish their stock, the better it is for their business.

One of the primary positives that dealerships see in these situations is that they’re helping a potential repeat customer build their credit. If they get someone in a car despite what their score is and that person is able to make timely payments and build that score, they’re likely to return when it’s time to trade up. Now that customer has some more buying power, and since the dealership already has a financial history with them, it’s easier to get to the next step as far as choosing their next vehicle is concerned. Then — the dealership hopes — begins a cycle of repeat business and a relationship of trust that could even spread to other customers who hear about how helpful they were in stabilizing someone financially.

Does it Really Help My Credit All That Much?

A man is holding his phone with his improved credit score on the screen.

In the long run, yes. Even a small monthly payment can go a long way to improve someone’s credit. For many people, it’s the kickstart they need. It’s especially helpful to be building off of a consistent monthly amount. Comparatively, many people rely solely on their credit card payments to help build credit, but the danger of adding to the debt and the potential inconsistencies of due balances can conceivably make things worse if you’re not careful. Getting a manageable auto loan with bad credit is a low-stress way to improve your credit status while also solving the issue of transporting yourself and maintaining a lifestyle equipped to improving your credit.

One of the first things you should do once you’ve completed your purchase is to set up automatic payments. Even though the monthly balance due may be small, a missed payment can do more damage than a single on-time payment can recuperate from.

Adding it All Up

No matter what your credit score is, you’re likely going to need a car. Bad credit shouldn’t prevent you from owning one, and delaying the process could put you in an even less ideal situation. In an age where debt is ever prevalent in everybody’s lives, at accruing earlier and earlier, having good credit grows in importance. An easy way to set yourself on the path to good credit is to start off with a maintainable auto loan from a lender that can work with your existing credit. Making those payments over time will help get you in a much better spot financially. So regardless of where you stand financially, you shouldn’t be asking ‘Is my credit too bad to get a car? but rather ‘Who will best help me get to where I need to be? Find yourself a dealership willing to work with bad credit and go from there to improve your life.