Just about everyone needs financing to buy a car. If your credit is weak or limited, consider turning to a bad credit car dealership.
Before you apply for a loan, it's very helpful to know your credit score. This is available for free from AnnualCreditReport.com, the only site authorized by the US Government to provide credit reports.
Many bad credit car dealers have websites that list cars, offer online loan applications, and process car payments.
- Many buyers use online credit services to determine the loan amount and terms for which they qualify before they shop for a car. (This can also be done over the phone or onsite at a bad credit car lot during business hours.)
- Once approved, you can begin looking over cars listed on the website.
- Many bad credit car lots and bad credit used car dealers accept payments through their websites. This is the best way to make sure your payment is processed on time.
The steps a bad credit used car dealership often include:
- A credit check
- How long a prospective buyer has been employed
- How long the buyer has lived at his/her current address
Depending on these findings, a prospective buyer could be asked to consider these options:
- Pay a higher interest rate
- Provide a larger down payment; 50% is not unusual
- Get someone with stronger credit, such as a parent or spouse, to co-sign the loan
- Layaway plan that converts to financing after a period of payments have been achieved
- Leasing, which is less expensive than purchasing a car
If you think that financing at a bad credit car lot is scary or complicated, you're wrong. In fact, it's much easier than you think. Asking the right questions at a bad credit car dealer ensures that you are not getting ripped off, and that you know what you're getting into. Write down or print out the following 10 questions and bring them with you so you can ask them when discussing your options at a bad credit car dealership.
- What type of cars am I qualified for at a bad credit used car dealer?
- How high is my interest rate?
- Are there any potential penalties to my loan?
- What is the total amount being financed?
- How many payments will I be making, and what is the exact amount of each one?
- Is there credit insurance, and do I need it?
- If I need credit insurance, do you offer it? If not, can you recommend one?
- Can I still get a vehicle at a bad credit dealership without a down payment?
- Who is the actual loan lender and am I guaranteed the rate I'm being quoted?
- What is the actual price I'm paying for the car? Does that include interest paid?
Remember to write down the answers while you are at the bad credit car lot so you can remember what the dealer says. If any of the answers that they say seem vague or confusing, take some time to think about it or ask to speak to a manager to get some confirmation. It's best to go to several bad credit car dealerships to shop around and find the best financing options for your credit situation.
Having bad credit can limit your options when it comes to financing a car, but it doesn’t necessarily mean that you’re resigned to high interest rates and longer terms that will blow your budget. While you might be limited to bad credit car lots, there are ways that you can still snag a good deal on a used car. Here are a few things to consider before planning your purchase:Check Your Credit
Just because you think your credit is bad doesn’t necessarily mean it is. Many people end up at bad credit car dealerships just because they think their credit is worse than it actually is. Do yourself a favor and get copies of your credit reports before you step foot on the dealership floor.
It’s important for you to know what's on your credit file and make sure that all of the information is correct before making a buying decision. In some cases you might find mistakes on your credit reports that, if fixed, could potentially boost your scores above subprime levels.Understand Your Options
One tactic that is used by many bad credit car dealers is to lengthen the term of the loan to make payments more affordable. These days, it’s not uncommon for 84-month loans to be offered as an option to individuals with less than stellar credit.
Dealers may try to intimidate you by offering long-term contracts or astronomical interest rates as your only choices, but understand that you have options. The truth is, the more desperate you seem, the more leverage that the bad credit car dealer has.Make a large down payment
When you’re in the market for a used car, and bad credit car lots are your only option, there’s going to be a certain amount of give and take. You can’t expect to get your dream car, with no money down and low payments for three years. It just doesn’t work that way.
However, if your goal is to make your payments more affordable, you should consider putting down a large down payment when you finance. This will not only lower your monthly payments, but it might also qualify you for a more favorable interest rate from your lender.
Although it’s probably not popular, the best tip for getting a good deal on a car when you have bad credit, is to delay your purchase and focus on improving your credit. Instead of being limited to the offerings of a bad credit used car dealer, consider holding off on your purchase and paying down your debt to rebuild your credit and possibly qualify for traditional lending with more favorable terms at a later date.
Car dealerships that offer In-House financing to borrowers with bad credit or no credit are called bad credit car dealerships. Bad credit car lots often have many more financing options than other lenders, making them attractive for people shopping for bad credit auto financing.
Bad credit car dealers have terms that are similar to terms from other lenders. In a negotiation with a bad credit car dealership, you'll be talking about loan terms such as the length of the loan, the amount of your down payment, and the interest rate. Putting up a large down payment can help you in bargaining for a lower rate or a longer loan length, because this means the bad credit car dealer takes less of a risk in lending to you.
Choosing a bad credit car dealer for financing also has benefits over choosing a bank, credit union, or other traditional lender. One reason is that the process of purchasing a car is easier since bad credit car lots can offer incentives, bonuses, and rebates that other types of financing institutions can't. This can include flexible interest rates, extended warranties, and increased services on your vehicle. Because bad credit car dealerships own the cars they sell, they don't have to borrow money in order to offer loans. You can also drive your car off the bad credit car lot the same day you go, because a dealership can move quickly through the financing process and get you out the door.