Should You Buy a New Car with a Bad Credit Auto Loan?

Get Car Financing
Even with poor credit.

By

Senior Automotive Editor

Christian Gulliksen was the Senior Automotive Editor for CarsDirect. He was formerly a senior editor with Robb Report magazine, and has contributed to publications like Worth, Variety, The Hollywood Reporter and MarketingProfs.com.

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, Senior Automotive Editor - April 26, 2016

CarsDirect Fact: When you have bad credit, getting a new car loan isn't as easy as getting a used car loan. Be sure you understand the challenges before you start shopping.

There's no question about it—financing a new car when you have bad credit is more difficult than financing a used car. It's not impossible, though.

Whether you'll be able to buy a new car instead of a used car depends largely on your credit score. There are three tiers of bad credit:

  • Non prime scores tend to fall in a range between 620 and 679
  • You might be more familar with the term subprime—scores typically run between 500 and 619.
  • Anything below 500 is usually treated as deep subprime.

If your score puts you near the upper end of non prime, you might have no trouble at all getting a new car loan—whether through your dealer or from your bank. Once your score drops below 650, though, it will be more of a challenge.

Apply for pre-approval from a dealer who specializes in loans for buyers with bad credit »

Some manufacturers—Chrysler, Dodge, Mitsubishi, Kia and Nissan, for instance—have been known to offer new car financing to customers with lower-end non prime and higher-end subprime credit scores. As a general rule of thumb, the less popular a model, the more likely a customer with bad credit can get a loan.

Once your score drops below 550—whether it's treated as subprime or deep subprime—getting a new car loan will become virtually impossible.

So, is it worth trying to get a new car loan rather than a used car loan when your credit isn't great? There are definite pros and cons.

Let CarsDirect match you with a dealer who understands your credit situation »

Pros:

  • Interest rates are better for bad credit auto loans on a new car.
  • You'll have the peace of mind that comes with a new car warranty.
  • A new car will likely require lower out-of-pocket maintenance costs.

Cons:

  • You simply might not qualify for a new car loan with a bad credit score.
  • A new car costs more than a used car, and depreciates more quickly. This means you'll probably be upside down in your loan—or owing more than it's worth—for a longer time.

Get pre-approval for a bad credit auto loan from a dealer who specializes in helping car buyers like you »

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, Senior Automotive Editor

Christian Gulliksen was the Senior Automotive Editor for CarsDirect. He was formerly a senior editor with Robb Report magazine, and has contributed to publications like Worth, Variety, The Hollywood Reporter and MarketingProfs.com.

Follow On: Google+ | Website

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