Finance Series, Part 2: Purchasing a car with bad credit

Sub-prime. If you have less-than-stellar credit and have tried to finance a car, then you may have been labeled as “sub-prime.” While this may sound like a condemnation that will forever brand you as being somehow deficient to lenders, it is not the end-all, be-all of car shopping. A sub-prime borrower is simply one with bad credit. Each lender has its own definition of what constitutes sub-prime status, but typically a credit score of less than 620 lands you this distinction. Fortunately for millions of car shoppers, sub-prime is not a disqualifier. You can finance a car with bad credit. Here is some advice we can offer to purchase a car with bad credit.

bad credit

1.) Assess your credit situation beforehand to eliminate surprises. Order your credit report from one of the three major credit bureaus: TransUnion, Equifax, and Experian. Verify the information on your credit reports is accurate. It is not unusual for credit-reporting agencies to make mistakes that could wrongly lower your credit rating. Sometimes, improving your credit score is as simple as disputing inaccuracies on your credit report.

2.) Set realistic expectations. Be prepared to have to accept a high interest rate and to have to put down a large down payment.

3.) Prepare a budget. List all of your expenses and compare them to your income. That way, you will know exactly what you can afford to pay per month and you can avoid getting yourself into a situation that could further worsen your credit.

4.) Save money for a down payment, title, tags, taxes, and fees. As mentioned above, if you have bad credit, then you can expect to have to put down a relatively sizable down payment in comparison to scenarios involving good credit. A good ballpark estimate is roughly 10 percent of the car’s value.

5.) Negotiate the sales price. Once you find a used car you are interested in buying, sit down with the salesperson or manager and negotiate the lowest purchase price you can.

6.) Complete the credit application. You will need to prove employment, income and residence, and provide whatever documentation the finance professional requires of you.