Your Options for a Bad Credit Car Loan

July 6th, 2016 by

When searching for a car loan with bad credit, it’s important to know your options. Some of the more mainstream opportunities available to consumers who have good credit scores are out the window if your credit is questionable. More likely than not, you won’t be able to get a new car — which is the conventional route for car buying in 2016. Therefore, you are a little limited compared to others. But, it’s important to understand that just because you’re limited by your credit score, you still have some options out there, such as turning to a bank or credit union. Some used car dealerships will even take you on with bad credit — but you should expect a higher interest rate. Finally, buy here, pay here dealerships are a great option.

Even though they are typically considered a last resort option, don’t rule out the convenience of one-stop shopping, or the allure of guaranteed financing.


Why You’re Limited

If you have bad credit, you might feel alienated when in the market for cars. You might have friends posting on Facebook about how they can’t wait to drive their new Chevy or Dodge home, while you would just be happy getting approval to buy a bicycle.

You made a few mistakes in the past, and your credit score paid the price. Now, it’s time to get a car, and you are unable to get financed for one because of your credit.

Really the only type of dealership that’s fully equipped to take on consumers with bad credit are the buy here, pay here dealerships. To them, you are considered a risk simply because you have bad credit, which in their eyes might be seen as a lack of responsibility. Couple that perception (whether it’s wrongly deduced or not) with something as big as a car loan, and you can see why these lenders wouldn’t want to get tangled up in that risk.

However, your credit needs to be pretty bad for a used car dealership or credit union to turn you away. Even if they did, you still have BHPH as an option.


Banks and Credit Unions

When it comes to looking for a car loan with a bad credit score, a bank or credit union should be your first stop. Go to the bank or credit union you are a member of and talk to them about loan options for you. After all, if you have bad credit, these two establishments are going to be intimately familiar with your credit score. Therefore, stopping by and checking in with them is a good place to start. Also, you will be able to get your credit score at the same time, which is necessary if you plan on doing some of your own hunting for a car loan.

They will take a look at your credit score, point out any black marks or other issues found on your credit report, then let you know if you are eligible for a car loan from them or not. Don’t be surprised if your bank denies you, seeing as they are more strict than credit unions when it comes to lending out money. If you aren’t part of a credit union and get denied by a bank, then all you need to do is sign up for a credit union and check in with them about a car loan. Since they are more lenient, you might find that the same credit score and report you had from the bank won’t be an issue for a credit union.

Whatever the case, expect and financially prepare for a higher-than-average interest rate on your car loan. 


Used Car Dealerships

If the bank or credit union denies you, go poke around on the internet for any used car dealers in your area. What you are looking for are phrases like “Guaranteed Financing”, or something along the lines of “No credit? No problem!” That’s the lingo that let’s you know these dealerships are willing to help consumers with bad credit get back on their feet and into a car.

Just keep in mind, however, that with your average used car dealership that idea of “No credit? No problem!” could quickly turn into “your credit score is too low for us to finance,” depending on just how low your credit score actually is. Some of them might not be able to take on a consumer with a credit score below 500, simply because the risk might be too great.

If you get turned away at one of these dealerships, then it’s time to check out some buy here, pay here dealerships.


Buy Here, Pay Here Dealerships

Even if the line between buy here, pay here dealerships and others is starting to become blurred, there are still strict buy here, pay here dealerships out there. If you have no where else to go, this is your last resort.

Since they are able to do everything in-house, these dealerships mitigate the risk of losing money if a bad credit consumer decides to default on their loan. You get the loan directly from the dealership, and then make bi-weekly payments in cash by driving over and handing it to them. That way, they won’t risk having a check bounce, and they know that you are making the payments on time.

If you have no shady intentions, this shouldn’t be a big deal. Slightly inconvenient? Yes. However, it also helps keep you on track with your payments, which promotes responsible financial habits.

Don’t just think of it as a last resort, either. A buy here, pay here dealership might work out better for you if you are unsure of how to go about applying for financing, or nervous about discussing your credit score with multiple people. Since they do everything for you, it’s a stress free and easier way to get a car if you have bad credit.

That means you aren’t just getting a car, you’re also embarking on a more structured plan to build your credit score back up, and eventually get a car that you really want.