Let’s face it, just about everything financially related is more difficult and more expensive when you have bad credit. Life is tough enough, but you compound the problem with being graded by a credit score and paying for past mistakes for 7-10 years and it can make some of life’s challenges that much more complex and painful.
So, what do you do when you need a new car and you have bad credit?
Let’s examine you options on how to buy a car with bad credit:
- You can pay cash
- You can borrow money from a friend or relative
- You can go to a dealership and see if you qualify for any sub-prime financing
- You can get a co-signer
- You can have someone else buy the car and then you can buy it from them
- You can go to a dealership that specializes in people with less than perfect credit
- You can go to a buy here pay here lot
Here are the Pros & Cons of each method of how to buy a car with bad credit:
You Can Pay Cash- Obviously, this is always the best method though it doesn’t help you establish or re-establish new positive credit
You Can Borrow Money From A Friend Or Relative- Having done this personally, I don’t recommend it unless it is an absolute last resort. It changes the nature of the relationship because it makes the borrower (YOU!) servant to the lender (your friend or relative). Not exactly conducive to a happy healthy relationship especially if you are late or miss a payment. Your friend or relative then becomes lender and collection agent.
New Car Dealership- This can be an effective solution depending on how bad your credit really is and more importantly, how bad your car credit really is. Auto finance companies tend to heavily weigh how you have paid past auto loans when underwriting your new loan application. So, examine your credit report for how your past auto loans are reporting before going down this path. Personally, my advice is to always work out your deal before you ever step foot on the lot. In other words, pick up the phone or use their Internet Sales Manager and see if they can finance you before you waste a lot of time. If not, ask for a copy of your credit report (which by law they are required to provide) and ask the finance manager exactly what you need to do to put yourself in a position to qualify for financing. Another good thing to do before you waste a lot of time is ask them what their lending criteria is before they pull your credit. If you here something that automatically disqualifies you, call another dealership. They all use varying finance companies and auto lenders so your results can vary from dealer to dealer.
Co-Signer- Having done this personally, I don’t recommend it. It is another last resort option for the same reasons listed above when borrowing money from a friend or relative
Someone Else Buying The Car For You- You have to be careful with this for various reasons. First, you can run into the same problems just like when borrowing money from a friend or relative or getting a co-signer. In addition to that, you have to be careful not to commit bank fraud. Someone else obtaining an auto loan to buy a car for you is what they call a “straw” purchase in the auto industry. It is illegal if not properly disclosed.
Dealership Specializing In Less Than Perfect Credit- Believe it or not, there are actually dealers who specialize in auto loans for people with less than perfect credit. One of our clients, who also just happens to be a former NFL football player and all around great guy, just happens to own a chain of car dealerships that specializes on loans for people with challenged credit. I did a post on him and his company back in February for Credit Repair College, titled, “How To Get A Bad Credit Auto Loan Without Getting Ripped Off”. You can get Mel’s information there. He is a great resource and a great place to start.
You Can Go To A Buy Here Pay Here Lot- This is another potential solution because they will finance you on the spot and you can typically make weekly, bi-weekly or monthly payments. The caveat here is that you need to understand the quality of the vehicle you are getting.
With any of these methods, you want to understand the quality of the vehicle you are getting. Just because you have bad credit and may not be an expert on how to buy a car with bad credit, doesn’t mean that you need to make your situation worse by compounding the problem with a lemon.
