It may sound like an unsafe gamble, but there are quite a few reasons why a lender would let a buyer with poor or no credit finance a car. According to a feature Edmunds ran on the subject back in 2015, “From the lender’s perspective, a new car has more value and therefore offers more collateral that can be reclaimed if the buyer fails to make payments.” While the feature focuses exclusively on the assurance associated with new-car purchases, thus eliminating the risk of money getting funneled toward costly used car repairs, not everyone has the ability to buy new. We feel that’s unfair.
Sure, the “buy here, pay here” line some used car dealerships throw out there may not help score points with credit bureaus, but that doesn’t mean all dealers are looking to fleece you. With a little research and preparation, credit problems can be easily overturned. Just by running your credit score three months prior to buying, you can give yourself time to eliminate any outstanding items on your credit report, thus improving your chances with a reputable lender, and making the buying process that much less painless.
One of the best bits of knowledge dropped in Edmunds’ report is how AnnualCreditReport.com gives people one free report a year on each of the major credit reporting companies: Experian, Equifax, and TransUnion. By doing this, you will get an idea of what credit tier you fall into, and that credit report will in turn help you potentially point out negative items, which are also called risk factors.
Risk factors typically pertain to things like old debts that wind up in collection, or traffic fines that end up getting flagged as delinquent. For $40, you can get your credit score from Experian and a 35-minute session with a credit educator, who will go over your report and point out areas that need fixing while giving you tips on how to address them.
Naturally, since your credit is bad, you also run the risk of paying a higher interest rate, and since some can be better than others, it’s always best to reach out to more than one lender. While most dealership websites feature credit applications you can fill out online for pre-approval, checking with your bank or credit union is the best place to start due to your pre-existing financial commitments with them. Edmunds experts say don’t worry about too many loan applications harming your credit either, because as long as you apply for all loans within a 14-day period, “they will only count as one ‘hard’ inquiry on your credit report.”
Once approved, you’re ready to go into a dealership to talk financing. But before heading down, there are four things you’ll need to bring with you, all of which will allow a dealership to determine that you are a trustworthy buyer. Always bring these items with you:
- The most recent pay stub from your job
- Your utility bill (gas, water, electricity)
- Your driver’s license
- Three personal references
Remember, just because you qualify for a more expensive car doesn’t mean you should buy it, because operation costs, interest, and daily living expenses won’t stop stacking up. Also, even though many car dealerships offer credit-challenged customers the chance to trade their old vehicle in without a significant increase in monthly payments, by refinancing your existing loan interest rates and monthly payments, you will be able to completely pay that car off sooner than later. This means that when it’s time to purchase your next ride, you’ll be in a higher credit tier, and that means it’s upgrade time!
If you’re curious about the dealership credit approval process, going with a reputable local OEM dealership that advertises bad/no credit score acceptance is always a great place to start. A quick search online will let you know who has the best reviews, and just to make sure that you’re getting the best deal possible, talk to your bank or auto lender before heading down, so you can have a counter offer and an excuse at the ready if the interest rate looks too high.
This leads us to the shady side of the equation, where local car dealership commercials target subprime buyers, as these “buy here pay here” operations try to charge more for crappy cars. While buying an overpriced car from one of these lots probably won’t hurt your credit score, it probably won’t help it either, and getting over-charged always sucks. Remember, most of these lots don’t have to report to credit reporting agencies, which translates to your credit score remaining the same, even after making all loan payments on time and in full.
If you do end up going with something used, take the exact same approach and apply it to dealerships that sell new and used cars first, as there still might be something on the fresh side of the lot that fits the bill. If not, used car companies like RightWay Automotive Credit are typically a solid option, as they have an A+ rating from The Better Business Bureau and have multiple locations in different states. Just remember that just because your credit isn’t spectacular, it doesn’t mean you can’t get a car for the right price. You just might have to jump through a few extra hoops or settle for something a little more on the pedestrian side of exciting.
While our cheat sheet on key ways to outsmart the dealer can still help you make the most out of a situation when it comes time to sign, Consumer Affairs also has a slew of killer tips at the ready that will help you prepare yourself prior to rolling in. So make sure your old debts are settled, talk to a trusted lender, run those credit scores, and don’t be afraid to say no, because there are plenty of automotive options out there for everyone, credit issues and vehicle preferences aside.