Purchasing a Car with Bad Credit

Before you can build the life of your dreams, you need a vehicle to move you in the right direction. Unfortunately, purchasing a car isn’t always so easy. Even if you have a lot of cash on hand, a poor credit score can make your quest for some new wheels much more difficult. Fortunately, bad credit isn’t the obstacle it once was. Car loans for bad credit are becoming more readily available; according to Fox Business, non-prime car loan approval increased 11.4 percent in the first three months of 2013.

Managing Expectations

It can be easy to assume your credit score is not good enough to get a car loan. However, this is exactly the type of attitude that will keep you out of a new vehicle. With the average credit score needed for a car loan declining in 2012, now is an ideal time to give it a shot. Besides, car companies want your business; they’ll work with you to get approved.

That said, it’s important to keep your expectations in check. Without a great credit score, you might not get approved for as much as you want. Therefore, saving money for a down payment is a great idea. This not only reduces the amount you’ll have to borrow, but it’s a sign of good faith to your lender. It shows you’re capable of effectively managing your money, which in turn will make it easier for you to secure your loan.

Your Credit Score

The best thing you can do for yourself as you prepare to buy a car is to obtain your credit report and score. There are many sites that offer credit scores, but MyFICO is the best because it uses the same FICO score that lenders use to evaluate your credit worthiness. The site usually offers a free trial, so you can check your score and cancel without paying a dime.

Even if your score isn’t perfect, you may be able to quickly improve your credit. The two most important components of your credit score are your payment history (35 percent) and your credit utilization ratio (30 percent). Check your credit report carefully for errors, and dispute any late payments that are incorrectly listed. You can also try writing a goodwill letter to creditors to see if they’ll reverse a legitimate late payment. The worst they can say is no, so it doesn’t hurt to try.

Knowledge is power, so use it to your advantage. Try to obtain your own financing by going to a credit union; if that doesn’t work, try a local bank. This gives you the time necessary to do your research and get peace of mind as you enter the car buying process, something you don’t have when you’re being pressured by the dealer at point of sale. According to CNBC, the average interest rate on a subprime (550-619) FICO score is 14.9 percent. Don’t let the pressure of the situation prevent you from getting the rate you deserve.

Frugality Counts

As you work towards buying your car, you’ll have to make some life adjustments. If your credit is damaged because you rely too much on credit cards for everyday purchases, now is a good time to break that habit. Bring lunch from home, grow your own vegetables, carpool with a friend and use a water filter instead of buying bottled water. The sky’s the limit in terms of the ways you can save, so be creative and find ways to keep your lifestyle intact without spending money. That extra money will help you big-time when it’s time to make your down payment.

Finding Your Dream Car

While you may dream of driving a BMW one day, it’s smart to set your sights a little lower. The average credit score needed for a used car is 100 points lower than for a new car, notes Experian Automotive, so try to find a used car that is reliable and looks good. Kelley Blue Book lists the true book values for all cars, both new and used; compare the book value to the price and make sure you aren’t getting ripped off. Also, check the Carfax report on any vehicle you are considering purchasing. Five Carfax reports cost $50, but the financial and emotional costs you’ll avoid through purchasing the right car is well worth the investment.