Before we talk about buying a car with bad credit we need to make the distinction between bad credit and no credit. If you have no credit that means there is no history of you buying a product with a loan and making payments. Every time you take a loan out at a bank or other lending institution the lender will keep track of when you make the payments and if you miss any. They then report this information to the credit bureaus who keep track of all your loan information and develop a credit score based on your past history. If you have no history because you have never taken out a loan then you are said to have no credit. This is not as difficult to deal with as having bad credit.
If a consumer is classified as having bad credit this means there is something in their credit history that makes it unlikely they will pay the loan off as agreed. Some examples of these problems would be a former car repossessed, not paying credit card bills, defaulting on a mortgage, or any other situation where the consumer borrowed money and then didn’t pay it back. If you have bad credit then the loan company will be less likely to provide you with financing for a car because they are worried they won’t get their money back.
If you have bad credit or no credit there are several options available. Generally, you can get financing no matter how poor your credit history but you will most likely need to pay a lot more in interest. Instead of a loan for 9% you may need to pay upwards of 20% interest. This can really increase the total cost of the auto. A better option is to get a co-signer. This is someone with good credit who guarantees the loan payments will be made and they are responsible if you don’t pay. Or, the third option is to increase your credit score before trying to purchase the car. To do this you need to take care of any black spots on your credit report and develop some good marks by paying every bill on time and even taking out a small loan and paying it off to show you can handle money.
Buying a car with bad credit can be a real hassle because it will usually require more documentation on your part and it will usually cost you more money in the end. You are much better off to keep your credit rating in tact by never defaulting on a loan or even making a late payment. Your credit rating is very important as you will see if you try to buy a car with bad credit.
