Your bad credit car buying options may not be as limited as you think. Let's take a look at the lender and vehicle options you have, and how bad credit affects them.
Lender Options for Bad Credit Car Buying
When you're financing a vehicle, there are two lender options: direct and indirect. Direct lenders are lenders you can apply to in person or online for an auto loan, such as a bank, credit union, or online lender. Indirect lenders are third parties that work through dealerships, such as captive lenders and independent finance companies.
Getting a direct loan, or pre-approval, should always be your first option. However, when you have poor credit, a direct loan is more difficult to qualify for. If you're an account holder in good standing, though, you may have a better chance – especially at a credit union. Even if you're able to qualify for a direct loan with bad credit, you're typically approved at a higher interest rate than you would be with better credit.
A pre-approval allows you to use what you qualify for on just about any car you choose, be it new or used, or at a dealership or through a private sale. However, because this type of loan can be tough to get if you're struggling with credit problems, you may have no choice but to turn to an indirect lender.
An indirect lender works as a third party through a dealership, where the dealer acts on your behalf between you and the lender. Rather than sitting face to face with the lender, you provide any needed information to the finance manager, who sends it on to the lender(s) to look at.
Indirect lenders are your most likely source of approval when you have bad credit. In fact, a type of indirect lender known as subprime lenders specifically work with bad credit borrowers. These lenders can be your best bet for getting the financing you need.
Vehicle Options for Bad Credit Car Buyers
When it comes to getting the vehicle you need with bad credit, you're not limited to old, high-mileage cars. Instead, you actually have pretty much the same options that good credit buyers have:
- Buying new – Just like a buyer with good credit, it’s often possible to buy a new vehicle with bad credit. Just keep in mind that it's not the time to finance your dream car. Instead, you should focus on an affordable new model that's reliable and meet your needs. New vehicles are more expensive to finance, and with bad credit, you can expect to pay a higher interest rate and to have to make a down payment. You may even be required to have a cosigner or co-borrower in order to get the approval you need.
- Buying a certified pre-owned car – A certified pre-owned (CPO) vehicle can be thought of as a really good used car. Not all used vehicles qualify to become a CPO car, and those that do typically go through an extensive, multi-point inspection by a manufacturer-certified mechanic. If the vehicle passes an initial inspection for a manufacturer's CPO program, it goes through refurbishment to bring it up to the manufacturer’s requirements, and is backed by some form of manufacturer-backed warranty. These cars fall somewhere between new and used as far as wear and tear, mileage, and price are concerned, and can be a good choice for a bad credit buyer who's looking for something with the safety and technology features of a new vehicle, but without the new car price tag.
- Buying used – There are a lot of options when it comes to buying a used vehicle. You can shop at a dealership, at a buy here pay here lot, or through a private seller. Used cars that you find on dealer lots usually meet certain requirements, but may not be the cream of the crop. What you may be looking at here are used vehicles that are up to 10 years old. This doesn't mean these are bad cars, just that they've had a bit more wear and tear than CPO vehicles. Because of this, it's a good idea to have any used car (including a CPO vehicle) checked out by a certified mechanic before you buy. Remember, even though used cars are cheaper to finance than new, you're still looking at higher interest rates with bad credit. If you purchase through a BHPH dealership, they may not check your credit score, but they generally charge an even higher interest rate and require a down payment.
Drivers Lane Tip: No matter which type of vehicle you're looking for as a bad credit car buyer, make sure you know where your credit stands, and what your budget looks like before you head to a dealer. Having a budget planned ahead of time, doing vehicle research, and knowing the average interest rate range for your credit score go a long way toward saving you money.
Find a Financing Fit for You
Now that you know you have no shortage of options when it comes to bad credit car buying, you just need to know where to go to get the financing you need. Instead of driving all over town looking for a dealership that works with bad credit, let Drivers Lane do the searching for you.
We work with a nationwide network of special finance dealers that offer bad credit auto loans through their lending partners. Simply fill out our easy, fast, and free car loan request form, and we'll get to work matching you with a local dealership. Don't hesitate – get started right now!