The Best Plan for Buying a Car with Bad Credit

Buying a car with bad credit isn’t the end of the world. Millions of Americans are going through the same situation you are, but are able to find plenty of bad credit car loans available.

The hard part about shopping for a car with bad credit is making sure you’re ready to buy a car, and can absolutely afford to do so. I say this because you’ll likely have less overall selection with a small budget and a higher interest rate due to the risk associated with bad credit car buying.

The good news is, a car loan is a great way to prove to lenders that you’re paying your bills on time and are responsible with your credit.

Here’s a simple plan of action to get yourself ready for the car buying process:

Have a Job or Provable Income

If you’ve got bad credit, not having a job or provable income is going to make it extremely difficult to find a lender, including Buy Here Pay Here dealers. Making payments on a vehicle will also be difficult if you don’t already have a source of income.

Some situations might seem insurmountable, but you could get rides to work or take public transportation while you’re in your first few weeks on the job. Once you’ve got that time under your belt, and some extra cash, you might be ready to come to the dealership.

At Least 20-30% Cash as a Down Payment

Bad credit car loan lenders need some reassurance that you’re going to pay the loan back. Coming in with 20-30% cash as a down payment will allow you to get batter rate options, and could be the difference between getting a loan and being rejected.

And naturally, this will also reduce your overall commitment to pay back. If you’re struggling paycheck to paycheck, having that extra bit of cash to save each month will be a huge help in the long run.

Bring Commitment to the Dealership

Many bad credit loans come from the dealership themselves, so there’s no automated system telling the salesman or finance manager whether or not you’re worthy of a loan. Instead, it’s a very personal exchange, as the dealership is acting as the bank.

If you come in with confidence and commitment to paying your loan on time and improving your credit, the dealership is likely to give you the best loan possible.

2021 Update

Can I Improve My Credit?

If you spend a lot of time figuring out your financing options and looking at different bad credit car loans available to you, then you’ll probably come to a simple conclusion: improving your credit score would be a big help! Fortunately, your credit score is not set in stone, and there are some relatively simple things you can do to improve it. Just remember that this isn’t going to happen overnight – minor improvements can happen in just a few months, but major long-term improvements will probably take longer. So stick with it!

Also, keep in mind that the end goal here isn’t just to improve a number; it’s to improve your overall finances and find a stable financial lifestyle. The things you can do to improve your credit score can also make it easier to make ends meet, manage your finances, and get other kinds of loans such as a mortgage. So don’t just think of this as improving a score, but as improving your life overall and making things easier for yourself in the years to come.

Credit Help – Use a Credit Card Carefully

We’re going to start with something that works very well but can also be tricky if you don’t have much experience using a credit card. One of the best ways you can improve your credit is to get a credit card and use it very carefully. We really can’t overstate this enough: use it sparingly but regularly.

If you have bad credit, you’re not going to be able to get the most amazing credit card possible, but that’s fine. There are cards available for people with low credit scores, and it’s a good idea to start small. If possible, find one without an annual fee, so you’re not paying extra for it each year, and get as low an interest rate (called the Annual Percentage Rate or APR) as possible. Keep in mind, however, that if you use it right, a high interest rate is not the end of the world.

That’s because you’re going to use your credit card for some minor purchases that you would otherwise just buy with cash and then pay it off completely each month before it’s due. Don’t buy things you can’t afford and then struggle to pay off the balance on your card; that’s a recipe for disaster. Instead, use your card to buy something you’d buy anyway, like gas, and then pay off the card before the payment due date.

This way, you’re demonstrating that you can make payments on-time, and you avoid paying any interest because you never have a balance on the card when interest would accrue. This might sound too simple to work, but it will absolutely start helping your credit score very quickly. The tricky part is to maintain self-control and only buy things with the card that you would otherwise already buy and can pay for right away.

Credit cards can be very tempting, especially if you live paycheck-to-paycheck, so this can be difficult. But maintaining restraint and making payments in full and on time is one of the best ways to help your credit score. Plus, you will have a credit card in case of a major emergency where you need some money the week before you’re paid or find yourself needing to pay for a sudden expense. Just always remember to use it carefully and make your payments on time because if you don’t, you’ll end up hurting your credit score.

Credit Help – Lower Your Credit Utilization

This is a little bit more complicated than using a credit card responsibly, but it’s still quite simple. “Credit utilization” refers to how much of your available credit you have used. Let’s say you have a credit card with a limit of $5,000 on it; if you have $300 on it and $4,700 available, then your credit utilization is low. On the other hand, if you have $4,200 on that card with only $800 available, then your credit utilization is quite high since you’ve effectively used up most of your available credit (again, this is a somewhat simplified version of this idea).

The point is, keeping your credit utilization low can help improve your credit score, as this is one of the factors that credit bureaus commonly look at and review in determining your score. If you have very little available credit, then it can indicate to them that you’re in a tough spot financially or that you’re not managing your debts well. So, whenever possible, pay off your loans and credit cards to keep your utilization low.

Credit Help – Don’t Apply for Too Many Loans or Credit Cards

Every time you apply for a credit card, loan, or similar form of credit, it will slightly lower your credit score. This is usually only by a few points and really isn’t that big an issue. The problem, however, comes if you apply for numerous loans or open up multiple new credit cards in a short period of time. This can be viewed as very risky behavior by lenders.

In general, try to keep applications for loans and new credit cards spaced out, preferably with a couple of years between them. The major exception to this, however, is that there is a window allowed for applications for a single type of loan or card. For example, if you’re trying to get a car loan and you’re applying at numerous lenders, this usually won’t have a big hit on your credit because it’s seen as you shopping around for a good rate, not trying to get multiple loans at once. Just find out what the window is for the type of loan you want – they vary – and be sure to get it done within that time to not hurt your score.

Credit Help – Mix Up Your Credit

It’s often best to have different types of credit showing up on your report at once, particularly if you’re making payments on time. For example, having a credit card, a car loan, a mortgage, or a similar type of loan simultaneously, with payments being made on-time for each, can help your credit. It shows that you’re able to handle different forms of payments and credit and still stay on top of your finances. That is the mark of a borrower who is low risk.

Credit Help – Make Payments on Time

Don’t let the fact that we’re mentioning this last fool you; this is arguably the single most important part of building good credit and applies to everything else we’ve covered. Always make payments on time. Whether you’re making a payment on a credit card, a student loan, a car loan, a mortgage, or even your utility and phone bills – always make your payments on time. We’re going to say this again just to be sure: always make your payments on time!

On-time payments will positively reflect on your credit score, and everything else you’re doing will be improved by making sure you never miss a payment. Even things that aren’t usually reported on your credit score – like a phone bill – can negatively impact your score if you miss a payment and your bill is sent to collections. If you’re having a hard time, call your credit card company, lender, or whoever you owe a payment to and talk to them about it. They’ll often work with you to figure out a solution, especially if you’ve made payments on-time in the past.

McCluskey Automotive Can Help

No matter what your credit situation looks like, we want to help. Having bad credit doesn’t mean you won’t be able to get a vehicle if you need one, but improving your credit will go a long way towards making sure you can get the best deal possible on the vehicle you want. Call or come visit us at McCluskey Automotive today, talk with one of our financing experts, and we will work with you to figure out the best way to get your next vehicle.