Being in the auto industry and automotive financing, we are often asked by customers how to buy a car with bad credit.
A credit score reflects a consumer’s creditworthiness and their ability to repay a loan. However, as we all know, sometimes there’s a rough patch, a sickness where medical bills and collections add up, a job loss that set you behind on payments, or any other life event that created a hiccup getting bills paid on time. Your credit score may not reflect that you now have a steady job, that you’re budgeted to catch up on bills, and isn’t an accurate representation on your ability to make payments on a vehicle.
Credit scores range from the 300s to 800+. Generally, “bad credit” is a score of 550 or lower. “Poor” credit is a score between 550-649. There are loan programs to finance a vehicle with bad credit or poor credit, but there will be stipulations and some things to know to set your expectations and budget.
Fortunately, there are bank and dealer lenders with programs that consider other factors besides your credit score to get you approved. Your stability in other aspects, such as time at a job or your down payment, influence the underwriter’s evaluation of your ability to make car payments. They will ask for documentation about these other creditworthiness factors as stipulations to getting approved.
Five tips for buying a car with bad credit
- Know your credit score. You know if you’ve had some late payment history, are carrying a balance on your credit card, or have filed bankruptcy. But how much does that factor into your credit score? Check your credit reports. Look if anything has been incorrectly reported. You get a free credit report by federal law from annualcreditreport.com. You can pay more and get your credit score. If your credit history has a mix of on-time payments and late payments across time, it will be worth your while to have an idea what credit range you are in. Those who don’t check their credit often go from dealership to dealership looking for an approval, each time leading to another credit inquiry which can ding your credit score.
- Save up a down payment. Your down payment is not just cash put towards the purchase of your vehicle. When you have bad credit, it is an additional factor when considering your creditworthiness. From the lender’s perspective, your sizeable down payment shows your commitment to establish credit with the lender. The lender can compare your down payment to your income and see how serious you are to get financed. Saving up a sizeable down payment can also decrease your monthly payment, an important factor to budgeting.
- Budget for your car payment. Know what you can afford by looking at your budget before you go to a dealership. Consider everything from housing, utilities, other debts, vehicle expenses, child care, food and entertainment. The more thoroughly you can look at your expenses, the better you can budget for a car payment that you can afford.
- Have your paperwork ready. Prepare your paperwork and bring the documents which will be asked of you for financing approval. You will need to show your proof of income. Your two most recent paycheck stubs will usually suffice. You will need to show proof of residency with a recent bill in your name at your home address, or by bringing in a copy of your lease. You will also be asked for references which include their full names, addresses, and phone numbers. In the credit application you will also need to complete your five-year address history. If you’ve moved a few times, it will be helpful to gather up those dates and addresses. All this information completes the story of who you are, where you get your income, and builds trust between yourself and the lender in place of your credit score.
- Find a finance program. Your automotive financing options will depend on your credit score and the credit markets. At the time you’re ready to buy, banks may have a subprime program for fair or bad credit car buyers, or they may not. Another option is buy here pay here, where the dealer finances the sale. Buy here pay here dealers can vary greatly from one to another. We recommend that you find one that is established in your community rather than a new fly by night operation, one that will report your entire credit history to the credit bureau and has a strong reputation.
- Be realistic. After you’ve figured out your credit score, your budget, your paperwork, and a dealer who has financing options available for low credit scores, it’s time to get shopping. Because your bad credit score doesn’t say the whole story about your creditworthiness, plan on spending about two and a half hours. This will give you time to complete the application, allow the lender to verify details about your employment and income, find vehicles that fit in your budget, negotiate the terms of the deal, and complete the financing paperwork. Your vehicle selection will have limitations because of your credit risk, but you should still be able to get a dependable vehicle that meets your basic transportation needs.
By doing the groundwork before you go to the bad credit car dealership you will be better prepared with the information that the lender is looking for to get you approved even if you have bad credit. It also allows you to prepare for everything that you will be asked to make the car buying process less stressful.
Looking where to buy a car with bad credit in Colorado? We can help! Mark’s Auto Sales has financed Denver car buyers with all credit scores, including bad credit, since 1983. Learn more about our buy here pay here financing program.