Is It Possible To Buy A Car With Bad Credit?

Buying a car is one significant expense that can affect your budget. Unless you have enough savings to buy one in cash, you probably need to rely on a car loan. The best car loans allow you to buy a vehicle with less financial stress.

You can choose from various options when getting an auto loan. Most people apply for one through banks, while others opt for car loans online with fast approval. Lenders look at multiple factors to determine whether to approve or reject your loan application.

One of these determining factors is your credit score. So, if your credit score is less than stellar, can you still buy your dream car? Find out below!

Understanding Credit Scores

First, let’s understand what having a ‘good’ or ‘bad’ credit score means. Big credit reporting agencies determine your credit scores. They track your financial habits and spending and rate your creditworthiness accordingly.

They have a rating system called Fair Isaac Corporation (FICO) score. Using the FICO scoring system, you can determine your creditworthiness based on the following categories:

• Exceptional: 800+
• Very Good: 740 to 799
• Good: 670 to 739
• Fair: 580 to 669
• Poor: 579 and below

According to statistics, almost 70% of Americans have a ‘Good’ credit score. In addition, the same statistics show that FICO scores remain steady, even during significant economic fluctuations.

Credit Score And Car Buying: The Number You Need

Loan requirements vary between lenders and financial institutions. They rely on different credit scoring models. Hence, there’s no specific suitable credit score to buy a car with a good loan offer.

Most lenders prefer a credit score of 660 or higher. Borrowers with this credit rating are low-risk and less likely to default on a loan. They have better chances of getting approval for higher auto loan amounts and lower interest rates.

Meanwhile, those with a credit score between 620 to 659 may still have good approval odds. However, lenders may consider you a high-risk borrower if your credit score falls below 620. Consequently, your chance of getting approved is low.

Can You Buy A Car With Bad Credit?

A poor credit rating doesn’t necessarily prevent you from buying a vehicle. If you plan on buying one via cash, poor credit won’t matter to car dealers. Bad credit can affect your application if you need a car loan.

Aside from credit score, here are some other factors that creditors consider when approving loans:

• Your income
• Credit history
• Employment background
• Credit utilization ratio
• Debt-to-income ratio

Most of the time, lenders will offer you loan options with high-interest rates. Make sure to weigh short- and long-term costs carefully.

However, with many bad credit car loans available it’s essential to shop around for the best deal.

Tips To Get A Car Loan With Bad Credit

Buying a car with bad credit can be challenging. Finding the right funding option between higher interest rates and some predatory lenders is like looking for a needle in a haystack.

Here are some tips to help you land a good car loan with bad credit.

• Review Your Credit Report

Sometimes, inaccuracies or mistakes can cause a poor credit score in your credit history. Consider checking your credit report. Carefully look through your payment history for any errors in your account.

• Get A Co-Signer

A co-signer is someone you trust who agrees to pay back the lender if you default on a loan. It can be a family, a relative, or a close friend. Choosing a co-signer with an excellent or good credit score can improve your chances of getting approved or having better terms.

• Prepare A Sizable Downpayment

Most lenders require a specific down payment, especially from borrowers with poor credit ratings. Giving a sizable downpayment can improve your loan and approval rates. It reduces the amount you need to borrow from the lender, minimizing their financial risk.

• Compare Options

When you start the shopping process, never limit yourself to one lender. Fortunately, several lenders and financial institutions can help you secure a loan even with poor credit ratings. Here are some of the options:

• Credit union
• Traditional bank or current bank provider
• Online lenders
• Car dealerships

Comparing loan rates and terms is necessary to ensure you get the best offer for your budget and needs.

Takeaway

A bad credit score can impact your life, especially when making significant financial decisions like car purchases. Getting a car with bad credit will often come with higher interest rates, lower amounts of loans, or a flat rejection.

While bad credit can make buying a car challenging, it isn’t entirely impossible. With enough patience, you can find the best loan deals and drive your new vehicle sooner.