Having a car is essential for most people. Unless you live in a major city with public transportation, there is often not a choice whether you should get a car or not. But, what do we do when we need a car, but we have bad credit?
Check Your Credit
The first step is to check your credit. Your score may not be as low as you think it is, or it may be lower. Either way, you need to know where you stand so you can understand your options. You should check your credit score with the three major credit bureaus, Experian, TransUnion, and Equifax, several months before you start car shopping. Checking your score ahead of time will allow you time to rebuild your credit if possible.
If your score is below 660, you should look for ways to improve it before you purchase your car. You can pay off debt, correct errors on your report, or take care of old collection accounts. All of these steps can help improve your score and put you in a better position to purchase the car that best meets your needs.
Know and Set Your Budget
Whether you have time to improve your credit or not, you should know what you can afford to pay before you go shopping. Auto loan calculators can help you determine how much you can pay. Once you establish a budget, stick to it. Going above your budget can lead to more problems in the long run. If you are unable to make the payments, it will lead to even more damage to your score.
Increase Your Down Payment
The more money you put down, the less money you must borrow. Larger down payments lead to more savings overall. Several factors will determine your down payment amount. They include, how low your credit score is, why it’s low, the vehicle purchase price, and the dealer you’re using. Typically, at least $1000 or 10% of the purchase price is recommended.
If you’re unable to put money down, your options will be limited. You may be able to purchase a car from someone privately who will take payments, but that’s unlikely.
Shorten Your Loan
Longer loans are seen as high risk because there’s more time for you to default on the loan. The interest rates are also higher. Shorter loans have higher monthly payments, so make sure your payment fits within your budget with room to spare.
Work with a Bad Credit Car Dealer
If you have an urgent need for a car, it may be beneficial to work with a bad credit car dealer. These dealerships specialize in no-credit and bad-credit buyers. They will work with your credit, but interest rates may be high, and terms may be unfavorable.
Having bad credit isn’t a deal-breaker when it comes to purchasing a car. It is possible to find a vehicle that meets your needs and your budget.