Bad credit can make it difficult to buy a car from a traditional dealer. However, car dealers with bad credit can help you get a loan and get approved. These dealers usually charge higher interest rates and fees, and they may not report your payments to the credit bureaus.
It is best to compare the rates and fees offered by the bad credit car dealer with those offered by banks and credit unions to ensure you get the best deal.
How bad credit car dealers work
Buying a car through a car dealer with bad credit is a lot like buying from another dealer. The only difference is that it may be more difficult for you to find a competitive interest rate. But, like a traditional dealer, you leave with a new – or new car – and a loan to pay off.
Because you have a less than ideal credit score, you will be offered a higher interest rate than a customer with good credit. The dealer will also take a commission, which is usually added to the interest offered.
Bad credit car dealerships may still require a credit check, depending on the type you go to. Be prepared for a new request for your report by picking out all the places you might want to request ahead of time so you can keep your store window tight and avoid multiple hits to your name.
Financing offered by car dealers with bad credit
Many car dealers with bad credit will finance a car regardless of your creditworthiness. However, your options are limited. Some dealers may charge extra for the financing option or charge a higher commission.
Buy here, pay dealers here
You may also be placed in a financing program that does not report your payments to one of the three major credit bureaus – Experian, Equifax or TransUnion. This is most common with “buy here, pay here” (BHPH) dealers. At a BHPH dealer, you can be offered a loan without a credit check, but you can only choose from used cars and there are other eligibility criteria that you must meet.
Subprime car lenders
Other dealers simply partner with subprime lenders to offer financing to borrowers with bad credit. These lenders may or may not report to credit bureaus. If you’re not sure, ask. Having a car loan can be a good way to build your credit – as long as you keep paying – but it won’t be if it’s not reported.
Regardless of which option you choose, it’s best to compare the rates and fees offered with those of a bank or credit union to make sure you’re getting the best deal.
How to get the best deal from a car dealer with bad credit?
To get the best deal, think carefully about your needs before arriving. If you know you want a specific car, it may be best to buy local inventories online when you do your research. You are more likely to know your options and which cars you want to drive. Be mindful of the sales process and avoid impulse purchases that you may regret later.
Determine your budget
Determining your budget is a critical step in the car purchase process. Calculate how much you can afford each month, including the other bills and expenses you have, and subtract the amount you need to spend on other debts, such as student loans or credit cards.
Also keep in mind that financing is only part of the cost of owning a car. You should also factor insurance, gas, maintenance, and registration fees into your budget.
Before going to the dealership, check with banks, credit unions, and online lenders that may offer pre-approval for auto loans. The dealer will likely offer you a car loan, but third-party lenders can give you better rates and terms if you can qualify.
Most of the time, used car dealers work with the same lenders that offer car loans directly to consumers. In this case, you can be prequalified for the same loan that the dealer would offer, but without the dealer’s price increase.
Even if you get pre-approval with what seems like a decent rate, don’t go for the first loan offer you receive. Shop around to see if you can get a better price elsewhere. Simply save your purchases within a two week period to avoid multiple hits to your credit.
Alternatives to Using a Car Dealer with Bad Credit
Car dealers aren’t always the best way to consider when buying a vehicle — even a used one — if your credit isn’t in top shape. There are many other ways to get a vehicle if you have a bad credit score, including:
- Direct lenders. These lenders have online platforms that offer direct applications to people with bad credit.
- credit unions. Many credit unions have lenient credit requirements than banks and offer special financing for members.
- Get a co-signer. A co-signer is someone with very good to excellent credit – usually 740 or more – who guarantees the repayment of the loan if you cannot. A lender may view you as less risky with a co-signer and offer a better rate as a result.
- Improve your creditworthiness. If you can put off buying a vehicle, it may be worth taking the time to pay off your other debts and improve your credit before buying a car.
- Save. This is another option if you are not forced to buy now. If you can save for a cheaper used car, you may be able to forgo financing altogether.
it comes down to
Bad credit car dealers may be able to help you get a loan and get approved, but they may not be the most reliable option when it comes to finding the best deal. Before going to a dealer with bad credit, research car loan rates with your local credit union and other lenders to see if you can qualify for a better deal.