Financial Tips for Buying a Car with Bad Credit

Say you’ve set your sights on a dream car, but there’s just one caveat: Your credit score isn’t anything to write home about. In fact, it’s pretty far from perfect. This could definitely make the process of buying your car more difficult, but don’t stress out too much! You still have options for buying a car with bad credit

Millions of Americans face the same dilemma you’re encountering. With proper financial planning, though, it’s a hurdle you can clear. We’ll take you through a handful of valuable tips that will make the experience of buying a car with bad credit manageable!

Assess Your Credit Situation

Before anything else, you need to know exactly what your credit score is. One of the major credit bureaus—Equifax or Experian, to name a couple—will be able to help you obtain a credit report. In addition to those options, offers one free credit report per year, so we encourage you to take advantage of that! Once you have your report in hand (or inbox), familiarize yourself with what the score means.

Once you have a big-picture view of your credit, identify where things may have gone wrong and cause your score to dip. One of the most common reasons is late payments on bills and other expenses, but it could also be due to things like high credit utilization.

Once the problem has been identified, it’s time for a solution. This is where you run the risk of failing by biting off more than you can chew, so be sure to set realistic goals. Instead of promising yourself you’ll have a perfect score within a year (not going to happen), focus on establishing a system for making payments on time. Once you get into that routine, you can begin to make bigger moves.

Create a Budget

It’s highly advisable to set a budget when dealing with bad credit auto loans. Calculate what you can reasonably afford when it comes to a down payment and monthly payments on a car. A rule many people follow is that your car payment shouldn’t be more than 15% of your net monthly income. Don’t forget to factor in every cost associated with the car like insurance, maintenance, registration fees, and gas. Once your budget is set, practice resisting the urge to overspend elsewhere. We know it can be tempting to eat out frequently or go see the latest blockbuster movie, but make sure you can afford it before you do it!

Save for a Down Payment

A down payment on a car is a big opportunity to minimize your monthly payments. The more you pay up front, the lower your interest rates and payments are likely to be. As a bonus, it may show lenders that you’re serious about financial planning.

We’ve already gone over the strategy of minimizing leisure expenses, but there are plenty of other tactics. Settings up automatic savings deposits and taking on a side gig to boost those savings can give you a huge boost.

Explore Financing Options

When it comes to financing, we can’t stress enough the importance of getting pre-approved by a credit union or bank. Why? Because it can give you better terms and more negotiating power when you’re at the dealership. Credit unions frequently offer lower rates for members who are trying to get a car with bad credit.

Handling financing through the dealership can be tempting, but it will likely come with higher interest rates. It’s best to hire someone who specializes in loans of this type. At Bay Motor Finance, we know how essential a vehicle can be to your life, so we do everything we can to approve you!

Consider a Co-Signer

Want to increase your chances of securing better loan terms? Consider a co-signer with good credit! Their credit history can give lenders confidence in your ability to make timely payments, which could lead to favorable terms.

It’s important to note here that this option comes with risks to your co-signer. If you miss payments, their credit score will also be negatively impacted. To avoid this pitfall, have a solid payment plan in place. Many online payment portals offer auto-payment features that you can take advantage of to keep you on track.

Shop Smart

It’s finally time to shop for your new car! While seeing all the possibilities on the lot can be overwhelming, you can narrow down your search in advance by researching the features and costs of several different models, as well as their reliability and maintenance costs. Don’t count out pre-owned vehicles, either. They frequently come with significant warranties, and their price tags can be much lower than a new model. That said, they’re more of a wild card. If you don’t find a pre-owned vehicle that’s in good enough condition, you still have the option to buy new.

Once you’ve narrowed down the options, it’s time for the fun part: Test drives. To make sure they operate smoothly and are a good fit for your preferences, take each model for a spin. When you have multiple cars to choose from that are all within your price range, a test run will help you decide on the winner.

Negotiate the Deal

When you understand a car’s market value, it gives you a substantial advantage during price negotiations—even if you’re trying to get a car with bad credit. Sites like Kelley Blue Book are great resources for gaining this knowledge, so we recommend utilizing them! When the actual negotiations are happening, focus on the big-hitting terms like interest rate (which can be helped by a co-signer), loan term, and more. And here’s a big precaution you should always take: Carefully read all terms and conditions before signing anything. This isn’t an agreement for the latest streaming service that you gloss over so you can start binge watching shows. This is a substantial monthly payment. Make sure you understand everything and avoid hidden costs and expenses!

Post-Purchase Financial Management

Buying a car with bad credit is intimidating, so a post-purchase plan is crucial. Once everything has been signed, make sure you set yourself up for success! As we mentioned before, setting up automatic payments or reminders to make payments is one of the best measures you can take to ensure you don’t fall into a late payments spiral. As time goes on, be on the lookout for options to refinance and achieve lower interest rates. If you’re smart about managing your purchase until it’s fully paid off, your credit will see an improvement!

Time to Get Behind the Wheel

A vehicle is an essential component of your day-to-day life, and managing the associated costs when applying for bad credit auto loans can be daunting. When it’s time to shop for a set of wheels, taking these steps can set you up for success:

  • Assessing your credit situation
  • Creating a realistic budget
  • Saving for a down payment
  • Considering a co-signer to achieve better interest rates
  • Researching cars
  • Negotiating loan terms
  • Having a post-purchase plan

When you’re proactive, you won’t have to worry about falling behind financially. At Bay Motor Finance, we understand that this process can be intimidating, and we’re here to help. Reach out to us and you’ll have a valuable partner in your journey to buying a car with bad credit!