What You Need to Know About Buying a Car With Bad Credit

June 14th, 2021 by

Understanding your options is key during the vehicle buying process if you have bad credit.

To get preapproved for a new or even used car, most dealerships require a credit check. This helps them determine if you’re likely to pay back the loan you’re financing through one of their creditors.

With bad or no credit, you may have a much different car buying experience. It’s not the end of the world, though, so long as you educate yourself.

Here’s what you should know about buying a car with bad credit at a car dealer in Janesville.

Credit Scores and Ratings Vary

First, it’ll help to define what credit scores and bad credit look like, so you can game plan for a bad credit car loans.

Most important of all, there is no number that disqualifies you from getting a car. Some dealerships are more risk-averse than others. Some also use different reporting bureaus.

There are three major credit reporting agencies: TransUnion, Equifax, and Experian. Not only can your credit score fluctuate on all three, but they use different systems to rate borrowers.

Ratings typically range between 300 and 850.

Credit Score Factors

Generally speaking, four items factor into your credit score:

Payment history
Amount of debt owed
Length of credit history
Mix of credit
Payment history and amount of debt owed are weighted the heaviest. But having a longer credit history can help you.

The fastest way to improve your score is to pay off your debt and make consistent payments on time.

You May Still Qualify

Bad or no credit does not mean you can’t get a car. It just means the buying process might look different for you.

Generally, anything below 630 is thought of negatively. At or below this number means you may not qualify, or have to take on a high-interest loan.

If you have no credit—which could be considered “bad” by a lender—some creditors may be willing to do manual underwriting. This is a way of determining your ability to pay back a loan without reading your score.

Manual underwriting requires access to lots of documents. Pay stubs, previous loans, other debts are all used to help you get a new or used car.

However, you may have to go through a bank or local credit union to get this done.

You Might Still Want to Check Your Score

Okay, so you know your credit score isn’t great. Maybe you missed several payments a few years back or went into default on a loan.

Even still, it can’t hurt to know your credit score before you shop. This way you can narrow down which dealerships you might shop at (some advertise their willingness to sell to people with bad credit).

It’s also good to know what type of interest rates you might expect. That way you can plan for how much you’ll pay each month before you shop.

You can request a free credit score online through a site like Credit Sesame. Some banks even offer free weekly or monthly checks through their mobile banking app.

Shop for Reliability, Not Features

You may not be able to get your dream car this time around with bad car credit. But you can still get a great, reliable car if you’re willing to look at things differently.

Remember, interest is a big deal. Many low credit score applicants qualify for an interest rate between 11 and 17 percent.

If you financed a fully-loaded car at $25,000, you could pay up to $37,000 over the life of that five-year loan. That’s almost 150 percent of the original balance!

On the other hand, a $10,000 car loan works itself out to just under $15,000. It’s still a big jump, but you’re saving a ton of money. And with lower car payments, you could pay the car off early—something that would rebuild your credit and save you lots of interest.

Bad Credit Ratings Can Stay For Seven Years

Before you start looking at new or used cars in Janesville, make sure it’s the right time.

In some cases, people have old credit histories that still haunt them. The good news is these credit ratings eventually disappear off your score, which can boost it.

So if you’re considering buying a car but know that you’ll be at or near the seven-year mark soon, it could help to wait.

Getting your score up to 100 or 200 points could save you thousands of dollars in interest. If your score is bad and you’ve been making payments consistently for several months or years, there’s a good chance this could happen for you.

Shop Local and Share Your Story

Not for nothing, people like a good story. Maybe your credit is bad because you’ve been down on your luck. Or maybe getting a loan for a car is one of the first steps you’re planning to take to turn your life around.

Whatever it is, make that part of your story when you go into the dealership. And be sure to shop local.

Type in “quality used cars near me” on Google and look in your town or community for something that fits your needs.

Of course, honesty goes a long way too. You should never make something up just to get a car loan. But you can leverage authenticity to maybe get approved for something you otherwise would not.

Buying Process In Janesville

The buying and research process for getting a car with bad credit can be different. But you can still get yourself a nice, reliable vehicle and not cripple yourself with high-interest payments if you shop smart.

Doing research, knowing your credit score, narrowing your options, and being honest about your situation are all effective ways to get yourself a car with bad credit.

Contact us today with questions about the buying process. We’d love to help you!

Posted in Car Buying Tips