When you have bad credit, you might think that financing a car is beyond your reach. Before you save up a ton of money and fork it over in one lump sum on a less-than-reliable, older vehicle, consider getting an auto loan instead. Believe it or not, a car loan is often within reach even if your credit is less than perfect, and a loan could even help you raise your credit score.

Consider Financing First

Is it Better to Finance a Car or Pay Cash?Before you head out to buy a vehicle with cash because you just need something now, consider the kind of car you can get with the cash you have available. If the answer is "not great," then you should stop to think about whether or not that money would be better spent as a down payment on a newer and more reliable vehicle.

Before you dismiss the idea, we can tell you it's often possible to get approved for an auto loan if you're working with the right type of lender. There are subprime lenders available for people who are struggling with bad credit or no credit situations, but you typically can’t meet with them directly. Subprime lenders are usually third-party lenders that offer loans almost exclusively through special finance dealerships.

Working With a Subprime Lender

Subprime lenders are used to working with credit-challenged consumers and take steps to look at your overall situation, rather than basing an auto loan approval on your credit score alone. They look at your ability, stability, and past credit behavior to help determine your creditworthiness, as well as ask you to meet several qualifications.

These qualifications include proving your identity, income, residence, and employment with documentation. Subprime lenders typically require a down payment, as well. Usually, subprime lenders call for a down payment of at least $1,000 or 10% of the car's selling price, sometimes whichever is less. However, if you've already saved enough cash for a low-cost used vehicle, you should have enough to earn a better deal.

At the same time, making a larger down payment than the minimum can save you money because the less you borrow, the less you have to pay in interest charges over the loan term. Put enough down, and you can lower your monthly payment, shorten your loan term, or even qualify for a better car than you were planning for in the first place.

Other Benefits to an Auto Loan

Not only can you qualify for a better vehicle by turning your cash into a down payment, it also could help your credit, as well. Making payments on time is one of the easiest ways to help build your credit.

Payment history is the largest factor in determining your credit score, making up 35% of it. Other factors – the amount of credit you use, the length of your credit history, your credit mix, and how much new credit you have – all show up on your credit reports and each has a different effect on your score. Each on-time, full payment you make on an auto loan is a step toward better credit.

Having the car loan also helps you build credit. An auto loan is a type of installment loan. Next to a mortgage, it's one of the largest purchases a person makes in their lifetime.

So, being able to qualify for one, and successfully repay it, helps improve your chances of qualifying for credit in the future – something you can't do when you pay cash for a vehicle.

Ready to Get the Car You Need and Build Credit?

Instead of spending your hard-earned cash on a less-than-reliable car you may need to put a lot into, use your cash for a down payment and get a truly reliable vehicle. If you're not sure where to start, look no further.

At Drivers Lane, we work with a nationwide network of special finance dealers that are teamed up with subprime lenders and are ready to help those with credit struggles. Get the process started right now, it's free, and there's never any obligation to buy. Just fill out our quick and easy auto loan request form and we'll get to work matching you to a local dealership.