Buy a Car With Bad Credit: Strategies You Need To Know in 2021!

Are you in the market for a car but your credit is less than perfect? Don’t worry, you’re not alone. There are loads of people out there looking to buy a car with bad credit.

Trying to buy a car with bad credit can be difficult. But there are strategies out there that can make it easier.

Here are a few things you can do to get the car you want, even if you don’t have the credit score you need.

Check Your Credit Score

Before you step foot on a car lot you’ll definitely want to check your credit score. Because the fact of the matter is that your credit score completely determines the interest rate you’ll be charged on your loan.

And if you’re looking to finance a car, you should know where you stand credit-wise. Once you get your credit score, check an online calculator to get an estimate of what a reasonable interest rate would be.

But where’s the best place to get your credit score?

Free Credit Reports

Well, one option is to get your score from the credit reporting agencies. Don’t worry, it’s free. You’re entitled to one free credit report per year from each of the three credit reporting agencies (Experian, TransUnion, and Equifax).

You can request your free report from one (or all) of the agencies, at AnnualCreditReport.com. And see what your score is and check if there are any errors in your report.

But keep in mind that the free report you get is an informational report. It won’t contain exactly the same information as the official credit report your lender will request from the agency.

Related post: How to raise your credit score by 200 points!

Credit Score Apps

A second option to get your score is to download Credit Karma or Credit Sesame (or both).

These apps will give you an estimate of your credit score. But the great thing about them is that you can check them anytime for free (not just once a year!).

Sign up for Credit Karma here and Credit Sesame here.

Official FICO Report

The third (and best) option is to buy your official FICO credit score from myFico.com. I know, I know, it’s money.

But the thing is, your FICO report will be the same as the official report your lenders get. The only difference is the length of the history covered.

Think of it this way, if you’re prepared to take a loan for thousands of dollars, it’s totally worth it to spend a few bucks to make sure you get the best interest rates available to you.

Get your official FICO credit report here.

Rebuild Your Credit Score Before Buying a New Car

If you want to buy a car with bad credit, perhaps the best thing you can do is spend a few months rebuilding your credit first.

After you sign up with Credit Sesame and Credit Karma, take a minute to explore the apps and you’ll see that they give you tips on what you need to do to improve your credit. A few months of staying on top of your score and actively building it can save you literally thousands of dollars on your loan when you do get your car.

Don’t Make Your Credit Score Worse

Since you’re going to buy a car soon, the last thing you want to do is do anything that will lower your credit score even more.

Pay all of your bills on time, don’t apply for any new credit (this will lower your score) and don’t add any new charges to your credit cards that you can’t pay off.

Make a Larger Down Payment

Putting more money down won’t improve your interest rates when your credit is bad, but it’ll increase your approval odds. After all, the more money you put down, the less risk there is for the lender.

If you need to save up some money for a down payment on your car then check out our post here for side hustle ideas or our post here on saving money on expenses.

Buy From a Private Seller

The ultimate way to buy a car with bad credit is to skip the financing altogether!

Private sellers all over are selling their used cars. But of course, buying from private sellers involves a bit more risk. You’ll have to handle all the paperwork yourself. You also won’t have access to some of the protections that consumers get when dealing with car dealerships.

But, if you’re interested in taking this option you’ll first want to research cars for sale in your area on websites like Autotrader. Once you find one you’re interested in, check out the Kelley Blue Book value and gather information about the car.

Make sure you get a vehicle history report from sites like Carfax, request any service records (if they’re available) and…ask questions!

After you’ve gathered all the information you need, you’ll want to take a test drive and get the car inspected as well.

I know it’s a lot of work, but it can save you a boatload of money if you get your car this way.

Related Post: What to do about your insufficient credit history.

Buy a New Car Instead of a Used One

It may be counterintuitive but new cars often have lower interest rates than used cars. So, if you want to buy a car with bad credit you may want to consider new cars first as they offer better financing.

When I first heard that new cars offer better financing that used ones, I didn’t believe it. But I found that there are a few good reasons for this.

The first is the resale value of newer cars. If the financing company has to repossess your car they’re able to get more for your new car than for an older one.

Another reason is that many financing companies are owned by manufacturers, and they want customers to buy newer cars. So, they incentivize new cars by providing lower rates.

It also turns out that people with higher credit tend to buy new cars and people with lower credit tend to buy used ones. Car companies know this, and the way they see it, the higher your credit score, the lower the risk to them. And a lower risk means that they can offer lower rates.

So, newer cars tend to have lower interest rates.

Get Pre-Approved Through Your Bank

Often we go to the car dealer and accept whatever financing offer we can get. But it doesn’t have to be done this way.

If you visit your local bank and get preapproved for a loan first, you’ll go to the dealer knowing exactly what you can afford. And you may get better rates from your bank considering you have a relationship with them.

Related post: Journey to fix my credit- from zero to hero.

Keep it Simple

One tip to help you buy a car with bad credit is to keep it simple. Skip GAP insurance, extended warranties and all the stuff the sellers try to talk you into.

Lowering the price as much as possible will make it more likely that you’ll get approved for financing.

Get a Shorter-Term Auto Loan

If you’re trying to buy a car with bad credit another tactic you might try is going for a shorter loan term.  Many people prefer to go for longer term loans because, the longer the loan term, the lower the monthly payments.

But it also turns out that the longer the loan, the higher your interest payments.

Get a Cosigner

If you’re trying to buy a car with bad credit then you may have better luck if you can bring a cosigner on board.

Cosigners are usually friends or family members with who agree to be liable for your loan in case you can’t make the payments.

I’m actually a cosigner on my sister’s car loan. I’ve no doubt she can (and will) make payments, but at the time she got the car she just needed some extra help to put her lender at ease.

Buy a Car With Bad Credit – Final Thoughts

Trying to buy a car with bad credit can be difficult, but there are a few strategies to make it happen.

Before stepping foot onto a car lot make sure you know where your credit stands. Take steps to improve it before you actually make the purchase. And put as much cash down as possible.

If you take these steps, you should have a pretty good chance of being approved for a loan. If not don’t be discouraged. There are still ways to get a car without the financing.

If you’ve managed to buy a car with bad credit, we’d love to hear how you did it in the comments below!

Cheers!