Buying a Car with Bad Credit

December 18th, 2019 by

A dollar is ripped open with bad credit showing through the hole.

Your credit rating is one of the most important factors in your financial wellbeing. It can determine whether you are able to get a mortgage to buy a house. It can determine whether you can get a credit card and, if so, the terms surrounding that card. And it can even determine whether you are able to purchase a car. What is bad credit? There are three major credit rating agencies, Experian, Equifax, and TransUnion, and they will review your credit history to then assign a score to you based on the FICO scale, which stands for Fair Isaac Corporation. The score runs from 300 to 850, with the higher score meaning a better credit risk. Anyone with a score at 580 or below will be considered a bad credit risk and find it hard to get a loan. If you are looking to get a mortgage for a new home, a home equity loan, or line of credit for your existing house, you may find it difficult if you have a bad credit rating. Even if you can secure financing, it may be on very onerous and burdensome terms. The same goes for a credit card. If you have bad credit, you may find that you have to pay an annual fee for your card, or have a very high APR (annual percentage rate) on any unpaid balance that you carry on your card. The same tends to be true if you are looking to buy a new or used car. Many dealerships won’t extend credit for a car to someone with a bad credit rating. So you may ask, “Can I purchase a car with bad credit?” You may be pleasantly surprised to find out that the answer is “Yes.”

At McCluskey Auto, we are dedicated to making sure you can purchase a car, even if you have bad credit. We offer the highest quality used vehicles with low mileage, an affordable price, and recent model years. Our finance experts will work with you to make sure you get a quality used vehicle that you can afford on terms that won’t create a greater financial burden for you. We have two convenient locations in Cincinnati, OH, and look forward to seeing you soon.

Improving Your Credit Rating

Unfortunately, it is all too easy to end up with a bad credit score. It doesn’t take much. Carrying a large credit card balance can hurt your credit score. So can having a legal judgment against you, such as an eviction from a former landlord. If you file for personal bankruptcy, your credit score will typically take at least a 200-point hit. Interestingly enough, if you don’t have a credit card, this can also lower your credit score. It can take a long time to build up your credit score, but it does not take much to hurt it, just like your personal reputation. In a way, this makes sense because your credit score is like your financial personal reputation. What makes it especially hard is that the worse your credit rating is, the more burdensome credit terms are for you, making it more difficult to get out of your financial hole and improve your credit rating. It truly is a vicious cycle.

There are a number of steps you can take to improve your credit score. You can set up automatic online payments, such as for a credit card or utility. This links your bank account to the lender so that the bill is paid every month. This will typically give a boost to your credit score. If you are carrying a large credit card debt, this can help you in two ways. First, it will help your credit score, and second, it will reduce the amount of interest that is accumulating on your debt. Credit cards typically have the most expensive interest rates. Don’t open new credit accounts while you are still paying off one with a large balance. This can hurt your credit score since it makes you look like a riskier debt to financial institutions. Finally, if you have an existing credit card you aren’t using and it doesn’t have a balance, keep it open. Closing it can actually hurt your credit score. Keep in mind that there are no quick fixes, but if you stay disciplined in your spending habits, you should be able to rebuild your credit score over time.

A man is smiling while he is paying off debts to fix his bad credit score.

Purchasing a Car on Bad Credit

With that said, you still need to purchase a car, and you don’t have the luxury of waiting for your credit score to rebound. Don’t panic. You can still purchase that car on terms that you can afford on your budget. The first step is to set a reasonable budget for your vehicle. Look at your monthly take-home income, and then calculate all of your monthly expenses. This will give you a sense of how much money you will have left over to pay for your car. Don’t forget to include money for gas and a reserve for routine maintenance. Once you have this number, you can begin to look for a car.

The next step is to understand what your options are. When you buy or lease a brand new car, chances are that the dealership either uses the manufacturer’s own credit agency, or has a bank, credit union, or automobile loan company finance the lease or purchase. Some of these include CapitalOne, LightStream, MyAutoloan, and Consumers Credit Union. However, if you have a bad credit score, these lending avenues may not be open to you, or the terms may be too expensive for you to afford. One of the best bets is to find a dealer like us that offers “buy here pay here” financing. This is where you arrange the car loan and make the payments directly to the dealership where you purchased the car. In other words, you won’t have to deal with an automobile finance company, improving the chances that your loan will be approved. Having a bad credit rating will not impact your ability to get the financing you need to buy the car you desire. The key will be to make sure that the car you pick is one you can afford on your monthly budget.

Getting the Best Terms Possible

Like anything else in life, you want to make sure that when you buy a car on credit that you get the best terms possible. There are a number of things you can do to address this. First, try to make as large of a cash down payment on the car as you can afford. The more money you pay upfront will reduce the amount that you have to borrow for the car. This, in turn, will reduce the principal on the loan so that you will have to pay less interest in the long run. As a rule of thumb, try to put down at least 10% of the purchase price to reduce your overall financial burden.

A second step is to try to get a shorter loan. While a shorter loan will involve larger monthly payments, it will actually result in you paying less money in the long run. This is because the shorter loan will reduce the number of interest payments while also reducing the principal of the loan (the actual purchase price of the car), which is known as amortization. So, while it may cost you more on your monthly budget, you will be finished paying off your car loan faster, and ultimately for less money.

Finally, make sure you are dealing with a reputable dealer who is known for buy here pay here financing. This is because you are not only relying on the dealer to provide you with a quality used car, but also that there are no hidden issues like prepayment penalties. By going to a reputable dealership in the community, like ours, you will find that you have someone who will work with you to get you behind the wheel of an excellent used vehicle on terms that you can afford, so that you will drive off happy. Give our financial team a call today to learn more.

Posted in Bad Credit