What bad credit car dealers are

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Bad credit can make it difficult to buy a car from a traditional dealer. However, car dealers with bad credit can help you get a loan and get approved. These merchants typically charge higher interest rates and fees, and may not report your payments to the credit bureaus.

It’s best to compare the rates and fees offered by the bad credit car dealer to those offered by banks and credit unions to ensure you’re getting the best deal.

This is how car dealerships with bad credit work

Buying a car from a car dealer with bad credit is very similar to buying from any other dealer. The only difference is that you may find it more difficult to find a competitive interest rate. But like a traditional dealer, you’ll walk away with a new – or new to you – car and a loan to pay off.

Since your credit rating is not optimal, you will be offered a higher interest rate than a customer with a good credit rating. The dealer also takes a commission, which is usually on top of the interest rate offered.

Auto dealers with bad credit may still require a credit check depending on which type you go to. Prepare to receive a new request for your report by pre-selecting any places you may want to apply to so you can keep your shopping window tight and avoid multiple hits on your credit score.

Financing from car dealers with poor credit ratings

Many car dealerships with bad credit will finance a car regardless of your credit score. However, your options are limited. Some merchants may charge additional fees for the financing option or take a larger commission.

Buy here, merchants pay here

You may also be placed in a financing program that doesn’t report your payments to any of the top three credit reporting agencies — Experian, Equifax, or TransUnion. This is most common with Buy Here, Pay Here (BHPH) merchants. You may be offered a no credit check loan at a BHPH dealership, but you only have used cars to choose from and there are other eligibility criteria that you must meet.

subprime auto lenders

Other dealers simply work with subprime lenders to offer financing to borrowers with bad credit. These lenders may or may not report to credit bureaus. If you are unsure, ask. A car loan can be a great way to build your credit — as long as you keep up with the payments — but it won’t if it’s unreported.

Regardless of which option you choose, it’s best to compare the rates and fees offered to those you would get yourself from a bank or credit union to ensure you’re getting the best deal.

This is how you get the best deal from a dealership with bad credit

To get the best deal, think about your needs well in advance of your arrival. If you know you want a specific car, it may be best to buy local stock online when doing your research. You have a better chance of knowing your options and what cars you want to drive. Pay attention to the sales process and avoid impulse purchases that you might regret later.

Determine your budget

Determining your budget is a crucial step when buying a car. Calculate how much you can afford monthly, including the other bills and expenses you have, and subtract the amount you have to spend on other debt like student loans or credit cards.

Also remember that financing is only part of the cost of owning a car. You’ll also need to budget for insurance, gas, maintenance and registration fees.

Get pre-approved

Before heading to the dealership, check with banks, credit unions, and online lenders who may offer auto loan preapproval. The dealership will likely offer you a car loan, but outside lenders may offer you better interest rates and terms if you can qualify.
Most of the time, used car dealers work with the same lenders that make car loans directly to consumers. In this case, you can pre-qualify for the same credit that the merchant would offer, but without the merchant’s markup.

shopping spree

Even if you get pre-approval with what appears to be a decent interest rate, don’t settle for the first loan offer you receive. Look around to see if you can get a better price elsewhere. Just keep your purchases within two weeks to avoid multiple hits on your balance.

Alternatives to using a car dealership with bad credit

Car dealerships aren’t always the best way to go when buying a vehicle — even a used one — if your credit score isn’t in tip-top shape. There are many other ways to get a vehicle if you have bad credit, including:

  • Direct Lenders. These lenders have online platforms that offer direct applications to people with bad credit.
  • credit unions. Many credit unions have more lenient credit requirements than banks and offer special financing for members.
  • Get a co-signer. A co-signer is someone with very good to excellent credit — typically 740 or more — who guarantees repayment of the loan if you can’t. A lender may see you as less risky with a co-signer and therefore offer you a better interest rate.
  • Improve your credit score. If you can wait to buy a vehicle, it may be worth taking the time to pay off your other debts and improve your credit score before buying a car.
  • Save up. This is another option if you are not forced to buy now. If you can save for a cheaper used car, you may be able to avoid financing altogether.

The final result

Bad credit car dealers may be able to help you get a loan and get approved, but they may not be the most reliable option when it comes to finding the best deal. Before going to a dealership with bad credit, check auto loan rates with your local credit union and other lenders to see if you may qualify for a better deal.

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