If you have no, low, or bad credit (any credit score below 600) and want to buy a used car, you’ve come to the right place. Although many incentives, such as “no down payment,” low interest rates, and loan terms are based on credit score, it’s still possible to find great deals on used cars.
How to Buy a Used Car on Bad Credit
This guide will help you understand your car financing options when you have no credit or bad credit:
1. Know Your Credit Rating
Your credit score is determined by the Fair Isaac Corporation, better known as FICO. FICO gathers information from three credit bureaus: Experian, TransUnion, and Equifax. This information is then weighted to form a profile of an individual’s credit risk. The most weight is given to payment history, constituting around 1/3 of your total score, followed by accounts owed (around 30%).
According to Investopedia, “FICO scores range from 300 to 850. Traditionally, borrowers with scores at or below 579 have bad credit.”
While FICO does not decide what constitutes a “bad” credit score, you can generally assume the following:
- Excellent Credit: 750+
- Good Credit: 700-749
- Fair Credit: 650-699
- Poor Credit: 600-649
- Bad Credit: below 600
The score is only “bad” or “good” depending on how the lender views it. It’s “bad” because it can keep you from certain perks, such as low interest rates and deals on insurance.
It’s a good idea to know your credit rating before you enter any car negotiations. After reviewing your credit report, you may find an error. You’ll want this error corrected before looking into financing options.
Get pre-approved for financing by completing our secure online credit application.
Does bad credit affect my car financing?
In general, the lower your credit rating, the worse your interest rate will be. If you have a high credit rating, you may be eligible for lower interest rates.
2. Buy a Car You Can Afford
You may have bad credit because of unrealistic expectations in the past. Be realistic and only look at cars you can afford. Take into consideration fuel, maintenance, insurance, cleaning and parking costs as well.
Follow these car financing tips and you should be able to make all your car payments without a problem:
- Plan on spending around 10-20% of your total monthly budget on automotive expenses. Even if you are not financing your vehicle, budgeting around 20% of your annual income on a vehicle will make sure you have enough to spend on maintenance and repairs throughout the year.
- Warranties will cover major repairs, but routine maintenance is often not included.
- Budget around 5-12% of the total purchase price for car insurance.
- When making your budget, take into consideration sales tax, title and registration fees, and any other add-on expenses.
- Make as large a down payment as you can. You will be paying principle plus interest on your monthly payments. The larger your down payment, the lower your monthly payment.
- Consider trading in your old vehicle for a better deal (See: What Is My Vehicle Worth? and Used Car Buyer’s Guide).
- If you have debt that you are paying off, then you want to follow the 28/36 rule. This rule finds it best to spend no more than 28% of your gross monthly income on housing expenses and no more than 36% on total debts, including student, housing, and car loans (Investopedia). So, take all of your current debt payments, add them up, and then subtract that number from 36% of your monthly income. The amount left will give you a general idea of what you can afford per month on car payments.
- Use a car affordability calculator or contact your local Auto Simple representative. If you are trading in your vehicle, get a quote from us so you can subtract the trade-in value from the estimated car budget.
- You can save a lot of money by choosing a fuel efficient car. Calculate your fuel savings here.
We recommend building up your credit using a secured card, which collects a down payment as collateral against defaulting on payments. This allows you to build up your credit when you have no or low credit, and eliminates the risk of getting into significant debt. Just make sure you make payments on time and use your card responsibly.
Use Our Car Loan Calculator (Based on Good, Average, and Bad or No Credit)
We specialize in bad credit and no credit financing, always working to find the best financing package to fit your needs and budget. We want to make sure that you drive away in a car that you can afford. That’s why we have a useful car loan calculator so you can plan your monthly payments ahead of time.
3. Do Your Research
Once you have determined your used car budget, you’ll want to find cars that fall within that price range. Don’t be tempted by add-ons and other cars just to “have a look.” Restrict your search to only vehicles you can afford.
If a used luxury vehicle seems to be within your price range, consider all of the extra expenses for repairs and maintenance. These luxury vehicles may seem nice, but they have usually have higher rates of breakdowns, thefts, and repairs and maintenance tend to be a lot more expensive.
Also, consider the reasons for getting a new car. If you need space for a growing family, don’t look at small sedans. If you need a car that won’t cost a lot to maintain, look for cars that are known for the reliability, such as Hondas and Toyotas.
4. Shop the Inventory
After researching the kind of car you want, search the dealership’s online inventory before making the trip. You want to make sure they have the make and model car you want.
5. Look for Certified Pre-Owned Vehicles
A certified pre-owned car is one that has undergone a full inspection and any necessary repairs as specified by the automaker. If you have a low credit score, you can’t afford to take risks with private sellers and uncertified pre-owned vehicles. Although CPO cars tend to cost a bit more, the added inspections and peace of mind will make sure that you are not buying a lemon.
Buying a certified pre-owned vehicle from a respected dealership such as Auto Simple, will ensure that you get consumer protection, warranties, trade-in savings, financing options, no paperwork, and easier negotiations.
Additionally, look for newer used cars as they tend to have better financing. If you can gather the cash necessary for a full purchase, however, you may get a better deal an older used vehicle.
6. Inspect the Vehicle
Ask for a vehicle repair and maintenance history report. Insist on a vehicle inspection report and certification checklist if it has been inspected.
Find the car you want and test drive it. After confirming that the vehicle is in stock, schedule a test drive. Don’t just show up and expect the car and dealer to be waiting for you. Call ahead of time and make an appointment to test drive the car.
Auto Simple has its own private test track with a variety of driving conditions so you can inspect the car’s handling. Don’t forget to test all of the electronic controls.
Learn more car buying and test driving tips with our Used Car Buyer’s Guide.
7. Only Apply for Loan if You Are Ready to Purchase
Although this isn’t always the case, opening up multiple credit inquiries within a short period of time can negatively impact your credit score. Be careful that you aren’t opening up multiple lines of credit within a short time span and this shouldn’t affect your credit score too much. Credit inquiries play a minor role in assessing credit risk, but it’s something to consider nonetheless (See: Credit Checks & Inquiries).
8. Choose the Shortest Loan Period Possible
Yes, longer loan periods mean a lower monthly bill, but don’t forget about the sneaking interest rates! Interest rates are usually lower for shorter terms, which can significantly lowest the total cost of the car. The sooner you pay off your car, the sooner you can focus on paying off other loans and saving money.
9. Consider a Cosigner
If you have bad or no credit, you may be eligible for a better interest rate with a cosigner. Talk to the dealership first before asking anyone to cosign. A cosigner has a lot of responsibility. They will be responsible for your payments if you are unable to make them. Only ask someone to cosign if you are confident in your abilities to make payments on time.
What to Bring When Buying a Used Vehicle
Other dealerships may require more paperwork. Auto Simple only needs the following 4 items to get you driving away in a New Certified Pre-Owned Vehicle:
- Proof of Residency x 2
Bring two recent pieces of mail with your name and home address.
- Proof of Income x 2
Bring two most recent paycheck stubs for proof of income.
- Government Issued Photo ID
Bring your valid government issued photo identification.
- Down Payment
Cash or credit will be accepted, no checks.
We can help you out with financing regardless of your credit situation. We accept good credit, bad credit, and no credit; however, annual percentage rates may depend upon credit score.
Good Credit? Accepted
Bad Credit? Accepted
No Credit? Accepted
Past Bankruptcy? Accepted
If you have any questions, contact the store nearest you.
Auto Simple specializes in certified pre-owned vehicles and helping people with bad credit or no credit get a great car and rebuild their credit along the way. We take great pride in offering second chances to good people.
Contact Auto Simple today and drive away in your dream car.
Chattanooga, TN – (423) 551-3600
Cleveland, TN – (423) 476-4600
Dayton, TN – (423) 775-4600
Dalton, GA – (706) 217-CARS (2277)