So you’re looking for a car, but your credit isn’t so great. Don’t worry; it’s not the end of the world. Here are some tips on how to buy a car with bad credit. First, figure out your credit situation. There are different types of “bad credit.” Have you faced recent bankruptcy or do you have a couple of late payments? How serious is it? If your bad credit isn’t that serious, having a good history with car payments is a plus. When car dealers look at your credit history, they usually only check your FICO score, “which is a single number that summarizes your entire credit history.” If your score is above 680, you’re good to go. If it’s below 500, you might want to think about paying in cash. But if you’re in between (above 500, but below 680), it’s considered “subprime.” Sub-prime means higher interest rates, but there are ways of getting around it. Using a dealer’s finance company is not your only option. You can get pre-approved loans from your bank or the manufacturer’s finance companies.
Also, you can consider lease takeover. Lease takeover is literally what it sounds like. Somewhere out there is a person trying to get out of their lease. If you are a person with good credit, you can easily get a decent interest rate. You can take over their car and lease payments. The lease company will still have to check and approve your credit, but they are not as likely to shut the door in your face. If you’re one of those people with a credit score below 500, or you can’t get a loan or a lease, there are other options besides up-front cash. You can borrow money against a 401k or home equity, or get a loan with a co-signer who has good credit. And, you can always borrow from friends and family.
If that doesn’t work, the only option left for you is to rebuild your credit history and try again later. For starters, pay down your highest credit card balances. Try to get the difference between your balance and limit to be as big as possible. After that, try opening new credit card accounts to use occasionally and pay off the balances when they’re due. Make sure you’re paying your bills on time. You don’t want to make your credit worse than it was before. Try getting a “secured credit card.” It’s like a debit card, because you have to pay into it first, but it counts as a credit card. And finally, check your credit score. Check it again, and again, and again. Check it until you’re happy with it, and then keep checking it. Hopefully, with time, you’re credit score will get better and you’ll be able to get that shiny, new (or slightly new) car that you always wanted. Enjoy it. With all the work you’ve put in to getting it, you deserve it.