Bad Credit Car Buying Options

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Even with poor credit.

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - January 28, 2019

I got blues. The bad credit blues. The bad credit, can't buy no car blues. If you've got those blues my friend, turn that frown upside down. There are a lot more bad credit car buying options out there than you might think!

Bad Credit Car Buying

Traditionally, auto lenders rely on consumer credit scores to base car loan approvals on. With bad credit borrowers, there's a greater risk of loan default, so many traditional lenders shy away from these loans.

Subprime lenders are different, though. These lenders look beyond credit scores to other factors for loan approval. Factors such as income, employment, and residency help these lenders determine whether a borrower has the stability, ability, and willingness to successfully complete an auto loan. If you have bad credit, you're required to show proof that you meet the requirements of a subprime lender.

Once you've gathered the required documents, you have a number of options available to purchase the vehicle you need with bad credit. Keep in mind, however, that some of these options are going to be tougher to qualify for.

Buying a New Car with Bad Credit

One thing that may surprise you is that a new car isn't always out of reach when you have bad credit. If you're working with the right type of lender, it's often possible to get the new vehicle you need, although if your credit score is low, the interest rate will be higher.

When you're thinking about buying a new car, it's very important that you know what your budget looks like. Subprime lenders typically require you to make at least $1,500 a month, before taxes (your gross income). Using your gross monthly income as a base, you can calculate your debt to income (DTI) and payment to income (PTI) ratios, which can help you create a budget.

Lenders typically like to see a DTI ratio below 50 percent. This means your bills, including a car payment and auto insurance, should account for no more than half your gross income each month. As for your PTI ratio, lenders generally like this to not exceed 15 to 20 percent. This means that your loan payment shouldn't be more than 15 to 20 of your gross monthly income.

You can use your PTI to set a target monthly payment range by multiplying your gross monthly income by 0.15, and then 0.20. The resulting numbers give you the minimum and maximum per month that you can afford to spend on a loan payment. But be careful that you don't base your car shopping on monthly prices alone.

If you focus too heavily on meeting a certain monthly payment, you could lose site of the big picture. If you don't take the total expenses of the vehicle into account, you could end up paying far more than you bargained for and end up stretching your loan term too long. A longer loan term does lower the monthly payment, but each day that you have an outstanding balance, you accrue interest. So, the longer it takes for you to pay off the car, the more money you end up paying in interest expenses.

Buying a Used Car with Bad Credit

If a new car just doesn't fit into your budget, you can look into getting a used model with many of the same standard safety features and quality reputation the newer models enjoy, but with a lower price tag. A lot of used vehicles are currently flooding the market as a result of year-end lease returns, which makes now a great time to buy one.

The same rules apply to used car buying as new car buying – make sure you know your credit, set a budget, and don't get caught up on the monthly payment. With used vehicles it's all about getting the features you want with the savings you need. But make sure that you take it to a trusted mechanic to give the car a thorough inspection before signing on the dotted line.

Alternatives to Subprime Lenders

Even though subprime lenders are considered "second chance" lenders, and often help people who haven't had luck getting financed through a traditional lender, they're sometimes unable to approve a borrower for a car loan. If you’ve been turned down by subprime lenders, there are still other options for buying a vehicle with bad credit.

Buy here pay here dealerships are car lots where the dealer is the lender. These in-house financing dealerships don't need to rely on outside resources to help you get approved. Because these lenders don't pull your credit, it can be easier to meet the approval requirements.

In-house financiers typically rely on your income, and sometimes your residency, to help you get approved for a car loan. They also require a down payment, which can sometimes be quite large, in order to allow you to sign and drive in the same day. You can also expect to pay a high interest rate at a buy here pay here dealership.

Some things you should know: at BHPH dealers, you aren't going to find the best or newest vehicles. The cars tend to be older used vehicles, so you should make sure to have a pre-purchase inspection done. You may also be required to make payments every week or two, in person. Make sure it's easy for you to get to the dealership to make your payments.

Finding the Dealership for You

Whether you're looking to buy a new or used car with bad credit, know that there are options available to you as long as you're using the right type of lender for your situation. If you need to find a dealer with the lenders available to help with your bad credit, no credit, or bankruptcy situation, let us help.

Here at CarsDirect, we work with a nationwide network of special finance dealerships that can help match you with a dealer in your area. Our service is free of charge and there's never any obligation to buy. Simply fill out our car loan request form now, and get the process of being matched with a local dealership started today!

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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