Buying a Used Car with a Bad Credit Auto Loan

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.

, - December 31, 2019

Buying a used car with a bad credit auto loan can be a smart option. Used vehicles typically cost less, and you avoid the steep depreciation drop that inevitably happens to new cars. Not to mention, vehicles are lasting longer than ever these days. If you have poor credit, buying a used car is often the best path when taking out an auto loan.

Benefits of Buying a Used Car

Picking a used vehicle over a new vehicle is a cost-effective choice, as used cars simply cost less than their new car counterparts. According to Experian, the average auto loan for a new vehicle checked in at $32,480 in the third quarter of 2019. That's $12,034 more than the average loan for a used car, which was found to be $20,446.

In addition to saving money, there are several other benefits to buying a used vehicle with a bad credit auto loan:

  • Better choices. There are so many choices available on the used vehicle market. Over the last handful of years, new car leasing has exploded. This has resulted in a large influx of late model used vehicles becoming available as these off-lease cars return to dealer lots. The variety on the market opens up more possibilities to find something you really want. Do some research on used vehicles right here at CarsDirect, and find some options that fit your needs and budget.
  • Biggest depreciation drop is over. When someone buys a used car that's a few years old, its biggest depreciation hit is already over. Depreciation is inevitable, and new vehicles usually lose most of their value early on. The data says that it's typical for a new car to lose around 20% of its value after the first year, and around 50% within its first three years. After that, the depreciation rate generally slows down. You can use this to your advantage and buy a vehicle that has already experienced the bulk of its depreciation to get more for your money.
  • Can still get a factory warranty. If the car is still fairly new, it may have time left on its original factory warranty. It's possible that the warranty carries over when you purchase it, but make sure to ask about this detail ahead of time. Additionally, you could shop for a certified pre-owned (CPO) vehicle. CPO cars are used vehicles that are only a couple of years old that have passed an automaker's inspection. CPO cars are backed by a factory warranty, so certain maintenance and repairs are covered.
  • Lower auto insurance rates. A new vehicle is likely to have a higher auto insurance premium than its used vehicle equivalent. This is because car insurance rates are based on the value of the vehicle, and used cars are worth less than their new car counterparts.

Of course, buying a used vehicle instead of a new one has drawbacks to consider as well. You may have to pay for more maintenance and repairs sooner than you would if you bought a new car. Also, used vehicles generally come with higher interest rates than new ones, so this would increase the overall cost of the loan.

The Bottom Line

Buying a used car with bad credit is often the smart thing to do because it allows you to save money. The other benefits of buying used are just the icing on the cake.

If you need to take out an auto loan and your credit isn't great, let CarsDirect lead the way. We help consumers find financing by connecting them with local special finance dealerships that work with bad credit. Start the process by submitting our free and secure car loan request form right now!

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.

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