Tips For Buying a Car With Bad Credit
Having bad credit can put you in a bind. Without a good credit score, you can’t obtain support financially for the most common adult purchases like that of a house or a car. Here are a couple of tips to consider when buying a car with bad credit.
1. To improve your credit score, don’t pay for everything with cash
Paying for a car in cash is not going to help you prepare your credit. The only way for you to improve your credit is to take out a loan and make small payments on a regular basis. You can subsequently improve the interest rate that you receive on any loans. Understand that by taking out a car loan for a new or used vehicle, there’s a chance for you to repair your credit or build up some credit out of nothing. Every step you take toward improving your credit score will help you later on down the line.
2. Lower your interest rate with a cosigner
The second is doing something to combat the interest rate you receive. Obviously people’s biggest concern here is the fact that if you have a bad for you were going to get slapped with a higher interest rate. You want to consider getting a cosigner in this situation.
If your a parent or spouse has a very good credit score, ask the auto dealer to give you an estimate for your interest rate if both of you were owners of the car. Having cosigners generally means that they take the average of your two scores which can help you. Even viewpoints can help you reach the next level.
3. Have a high interest rate? Consider a higher down payment
If you need to take out a loan with a high interest rate, you’ll be better off in the long run if you can afford a higher down payment. The more cash you can pay upfront, the better the interest rate and deal you will get on the car itself.
Understand that a lot of people do not buy their cars in full. Most people go to a dealer and pay their minimum and then get charged a ridiculously high interest rate for the next 10 or 15 years. You can avoid this by offering a $5000 down payment instead of the asking price of $2000. Something like that shows that you’re good for the money and that clearly you are getting the loan to help your credit.
4. Don’t splurge on your purchase
If you can, consider saving up the cash you need for a lower rate car, perhaps one that is used and only cost a few thousand dollars. If you can do this, you can show the dealer that you have the full price in cash but that you still want to take out a loan. By paying a higher down payment and already having the money set aside, you can give yourself financial peace of mind while potentially lowering the interest rate your will be charged.
5. If all else fails…
Remember to take into account whether or not you are able to afford the interest rates offered to you. Try different dealers. If nothing pans out, postpone leasing your car for six months and use that time to really work at improving your credit score and saving money to make a bigger down payment.
Why debt is important for a good credit score
It may seem counterintuitive, but in order to prove that you are worthy of receiving credit, you have to take out of debt. Most people, especially those who went to college after 2009, have been taught that debt is bad. And yet, the one secret that the credit-savvy know is that debt is necessary to build credit.
The trick is how you look at it. More financially savvy individuals will see that minimal debt that you can pay back is helpful. The word “debt” is not necessarily a bad word. The more financially savvy individuals will tell you a completely different story. In order to prove you are worthy of receiving credit, you have to prove that someone can give you money and you can pay it back in a timely fashion.
The more you borrow money and pay about a timely fashion, the better your credit score looks because you have built a reputation for paying that. So remember, controllable debt is good.
Review these 5 tips when buying a car with bad credit:
- Don’t pay for the entire car in cash. Rather, take out a low-interest loan to show that you are credit-worthy.
- If you are given a high interest rate, consider getting a cosigner.
- If you put down a higher down payment, your loan will be smaller. Therefore, the total interest you’ll pay will be lower as well.
- Get an economical car. This is not the time to be buying a new high-end luxury car.
- If all else fails, try different dealers or even hold off on getting a car. Instead, work on getting your credit score back up and try again. You can use one of our recommended best credit repair companies to help improve your credit score and get you back on track.