How to Finance a Car With Bad Credit

Sami Haj-Assaad
by Sami Haj-Assaad

Your lease and finance rate depend heavily on your credit score, which might make it difficult for some buyers to get an attractive rate when it comes to getting a loan.

It’s important to understand the weight your credit score has on getting a car loan, and what you can do to get a better rate or loan when the time comes to buy a new car.

First, check your credit report and ensure everything is as it should be. Even the slightest inaccuracy can affect your credit score, and make it hard for you to get a nice loan rate. For future reference, be sure to check your credit history at least once a year, and to make sure it’s up to date and full of accurate information. There’s a myth that checking your credit score too many times is bad. This is wrong; checking your score yourself is fine, but letting a financial institution check it for the purpose of giving you a loan is a bad idea.

Additionally, credit scores are publicly available to you now. Your credit score can be easily attained through Trans Union, Experian and Equifax. A score of 720 and above is considered excellent, and those who have such a score are usually able to net a loan quickly, easily and with a good rate.

However, anything below 620 is considered subprime. At that level you may still be able to get a loan, but your finance rates will be higher than borrowers with a better credit score.

Auto financing and leasing both rely on your credit score, so don’t think you’re in the clear by taking one form of car ownership over the other. Leasing, however, provides a lower overall payment compared to financing, so it might be easier to stomach a higher rate.

If your only source of getting a loan is from the dealership, understand that dealers tend to get a cut of the financing deal, which means they may not offer you the best deal. Fortunately, getting your loan from the dealer isn’t the only way. It’s recommended to get some idea of what your loan will be from a bank or credit union before even stepping foot in the dealership.

You can also shop for a loan. Since rates are different depending on the lender, you can look around and talk to a loan officer about what kind of loan you can get based on your credit score. Your bank or credit union may also loan money to you even if you don’t have perfect credit.

If you’re still not satisfied with what is available to you, it’s time to take matters into your own hands. Your credit score is not set in stone, and with some good habits, you can bring your credit rating back into prime territory. By paying bills in time, and not getting extensions on bills or credit you can bring back your credit score into attractive territory with the financing company.

SEE ALSO: Car Loans 101: What You Need to Know About Financing a Car

It might take some time to bring up your credit score, however, and could take as long as two or three years. That might put your new car buying decision on ice, but is better in the long term since your loan will be cheaper.

If you’re unable to change your plans and need a car sooner than later, you can always look to the used car market or a third party seller. A good idea is to buy a cheap car to use for two years while you focus on raising your credit score so you can get a car loan on a new car or lease.

Sami Haj-Assaad
Sami Haj-Assaad

Sami has an unquenchable thirst for car knowledge and has been at AutoGuide for the past six years. He has a degree in journalism and media studies from the University of Guelph-Humber in Toronto and has won multiple journalism awards from the Automotive Journalist Association of Canada. Sami is also on the jury for the World Car Awards.

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