5 Essential Tips for Buying a Used Car With Poor Credit

Sometimes, credit issues can’t be helped. The credit industry is designed to make life easier for lenders and their businesses, and in theory, it was meant to help out the customer. It meant less risk for lending businesses, and it was supposed to mean that potential borrowers had an easier time obtaining a loan. However, as the credit industry has grown and evolved, this has meant that more and more credit customers have had a rough time trying to obtain credit.

Excellent credit scores are few and far between. Nearly 80% of Americans have a less than excellent credit score, meaning that in the eyes of credit agencies, almost 80% of Americans have something on their credit reports that make credit agencies raise an eyebrow at their spending habits. The “worthiness” of a person’s credit is often a lot more ambiguous than they would like to think, as well. For those who don’t have excellent rates, this can translate to higher interest rates on credit cards, fewer loan opportunities, and delays in financial applications. For those with credit scores of less than 650, this can be disastrous, and finding funding for smaller purchases like cars can be a nightmare.

If you have credit issues and are in the market for a new car, there are steps you can take to ensure that you aren’t left feeling hopeless at the end of the day. Here are five essential tips when buying a used car with poor credit.

Shop Around for the Best Interest Rate

Don’t just go to your bank and settle on whatever loan option they give you. The first thing to do before seeking out a loan to buy anything, including a used car, is to read the fine print on more than one deal. Interest rates will likely be steep if you have a credit score below 680. For those with credit scores lower than that, you can expect to pay more than 15%. Unfortunately for those with very low scores, interest rates can be as high as 30%, though these interest rates are usually very uncommon, as banks would rather not lend to you.

For a credit score between 679 and 640, you can expect to pay anywhere between 17% and 19%. Those with scores between 639 and 300 can expect to pay between 28% and 30%. Most lenders have online tools that help you calculate your potential interest, and it is worth it to check your credit score with a free online tool like Credit Karma before applying for loans. Use your known credit score to determine whether the rate is fair based on your credit score.

Consider a Buy Here Pay Here Car Dealership

Despite what you might hear, interest rates are often very competitive at buy here pay here car dealerships, especially if your credit history is a little less marred than you might think it is. And while some lenders will flat-out deny those with lower credit scores the opportunity to borrow from them, buy here pay here car dealerships will never turn a customer away because of their credit score.

Buy here pay here car dealerships look at your average monthly income instead of your credit score. Their applications, which often can be filled out from the comfort of your own home, look closely at how much you spend per month on bills as well as how much you make from your job. Using this information, they put together a lending amount that is meant to give you some wiggle room in terms of the type of car you ultimately purchase while making sure you don’t go over your budget. Additionally, paying off your vehicle through a buy here pay here dealership will help you rebuild your credit for future purchases.

Work on Your Credit as Much as You Can Before Applying For Financing

Working on your credit as much as you can before applying for financing is a great way to lower interest rates on potential loans as well as opening up funding opportunities. One popular and fairly easy way you can start to work on rebuilding your credit is to make sure that you are making payments on time. Pay off any outstanding balances on monthly bills and consider making extra payments toward your credit accounts. If you can go without a car for a little while to do this, this might be your best bet to save you down the line. Also, remember that using more than 30% of your credit allowance on cards counts negatively against you, so paying to lower your credit card balances will help substantially.

Do Research and Budgeting Before You Purchase

Sometimes, saving and purchasing a new car means taking a hard look at your life. Determine what kind of car you need. For instance, if you want a truck, consider how you’d use it. Do you own a farm where it would make fiscal and common sense for you to have a truck? Or, do you work at an office job, live in town, and only get out to the country a few times a year? If it makes more sense for you to get a car that might not be your first choice, do a little research on vehicles that make sense for you. It might turn out you actually like cars that could save you a little money and help you repay your debts.

Save Up for a Down Payment

Finally, one thing to keep in mind is that whether you buy a car from a used car dealer or manage to get funding through a new car dealership, your interest rate will probably be higher than other people buying the same car. Although there’s no shame in this, it is in your best interest in these cases to make as big a down payment as you possibly can on your car. It will mean you spend less in interest, as well as getting you that much closer to ownership.

For the best used cars in town for those with low or no credit, visit Auto Now in Belton, Missouri. Apply for financing online now, or call us at (816) 331-2100.