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Financing a Car with Bad Credit

Friday, December 7, 2012
Image Courtesy of Flickr

A bad credit history often makes financing a car difficult to manage. There are steps you can take, however, to get the financing you need despite a less than positive credit rating.

Be Prepared

The first step in financing a car with bad credit is making sure you are prepared for the questions and actions you will be asked to complete. Gather pay stubs, deposit records and tax returns that can verify your income, especially if you have recently begun earning more money which will allow you to keep up with car payments easily. Know the maximum down payment you can afford and the average fair market value of your current vehicle if you are planning on trading it in as part of the deal.

Check Your Credit Score

Even if you know your credit score is low, you should still know the details of what you owe and to whom your debts are connected. There may be errors or oversights that can be cleared from your credit report or you may be able to settle a debt and improve your score. Never be surprised by your credit score situation while in the middle of the financing process.

A bad credit rating is any score below 520 or scores under 700 with extremely limited credit history. Be aware before you begin the financing process that poor credit may mean you will only qualify for high interest loans with steep fees and penalties for missing repayment deadlines.

Dealer vs. Outside Financing

Finally, you need to decide whether you want to pursue financing through an outside financing institution or through the dealership from which you are purchasing the car. Big name care dealerships often work with banks in order to offer reasonable interest rates to customers who may not be approved for financing through outside avenues, like banks. If you have bad credit, and are purchasing a car from a smaller or less reputable dealership, then attempting to get approval for a loan with a moderate interest rate may be the best course of action. A co-signer, like a family member with a better credit history, can help you get a financing deal with a manageable interest rate and payment schedule.

Bad credit does not need to stop you from purchasing the car you need. Know your options and the reality of your finances in order to achieve the best financing possible.