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How to get a car with bad credit?

If you’re considering a new car and you have bad credit, the door to that financial goal isn’t closed. You’ll just have to consider some alternative options. Let’s discuss how you can get a car with bad credit below. 

Is it better to lease or buy a car with bad credit?

It’s possible to lease or buy a car, even with bad credit. Which option is better for you will depend on your needs. 

When leasing a car, you don’t typically have to make a big down payment, your monthly payments are smaller, will deal with fewer car repairs and you get to drive a new car more often. However, you never own the car so you aren’t recouping any of your costs when trading it in. Additionally, if you go over the mileage allowance, it could get really expensive. Currently, you will pay on average $0.10 to $0.25 per mile over the contracted amount.

The benefit of buying a car is that you own it so you can do whatever you wish with the car. It’s also cheaper, in the long run, to buy a car than to lease. However, Buying a car is more expensive initially, due to the down payment, and the APR rate and your monthly payments are higher. And since vehicles depreciate quickly, you lose value as soon as you drive it off the lot. 

How to get a car loan with bad credit

When it is time for a new car, having bad credit can make it seem impossible to get a new set of wheels. Life happens and we all make mistakes. It takes some time to build back your credit from situations like maxing out your credit cards and getting behind on payments. 

Bad credit car loans are a possibility however those come with high interest rates. You’ll want to carefully weigh your options. If a car is something that you need right now, we’ll discuss everything that you should consider here. 

How to buy a car with bad credit and no down payment

A down payment helps show lenders that you are more likely to repay your car loan. In case the loan is not repaid, it also acts as a buffer to help protect them. So if you have bad credit and can’t afford to put down a down payment, a car loan isn’t going to be easy. 

Most auto lenders will ask that you have a down payment if you have bad credit. Having a down payment has shown that borrowers are also more likely to complete their car loans. 

Subprime lenders will generally require at least $1,000 or 10 percent of the car’s selling price (whichever is less) as a down payment. Trade-in equity, cash, or a combination of the two can be used as a down payment. Generally, the money must be from your own funds and not borrowed. 

Although in-house financing car dealerships don’t check credit, they still typically require a down payment. These financing options are ideal for those with bad credit. The down payment amount varies by dealership.

If you have bad credit and don’t have a down payment, you might be able to find a loan from an online lender like CarsDirect. But your chances are slim.

It is in your best interest to work on improving your credit or saving money for a down payment instead. Having a down payment has many benefits including:

  • Lower monthly payments
  • Can shorten the loan term
  • Reduce the time you have negative equity
  • Reduces how much interest you are charged

The bigger your down payment, the more beneficial it is for you. 

How to buy a car with bad credit without a cosigner

A cosigner is someone who agrees to apply for the loan with you and is also responsible for making loan payments. Lenders feel more secure when a cosigner who has good credit is applying with a primary applicant with a poor credit history.

But if you don’t have a cosigner and you have bad credit, there are a couple of ways you potentially get approved for a car loan:

  • Put down a bigger down payment
  • Choose a car that’s more affordable
  • Work on improving your credit
  • Work with a special finance dealership

These options could make it possible to get a car with bad credit and no cosigner. If you still can’t get approved for a car loan without a cosigner, there is one other option that you can explore.

In-house financing is when the auto dealership financing its loan in-house. They are often referred to as buy here pay here (BHPH) dealers. These dealers don’t use outside lenders so in most cases, they won’t complete credit checks. 

How to refinance car loan with bad credit

It’s still possible to refinance your existing car loan, even with bad credit. By refinancing an auto loan, you’re replacing your existing loan with a new one that has a lower interest rate or better terms. It should definitely make sense in your financial situation to refinance a car loan before making the decision to.

If your credit hasn’t improved significantly since taking out the original loan, you might find it difficult to get a lower interest rate. But if you wish to lower your money payments without regard to the interest rate, you could refinance to get a longer-term. This increases the amount of interest you’ll pay over the life of the loan, so make sure this makes in your situation.

Consider the following three items before deciding to refinance your car loan:

  • Your current credit score. This will determine your auto refinance rate. Check out how Experian breaks down credit scores.
  • Did you get dealer financing? You might have paid too much if you didn’t negotiate your rate.
  • The last time you refinancing your car. There’s no limit to how many times you can refinance, but it impacts your credit score and also draws out your debt. 

When refinancing your car loan with bad credit, you should shop around for lenders to get the best deal possible. Some auto lenders that work specifically with those with bad credit include:

  1. Auto Credit Express
  2. New Roads
  3. iLendingDirect
  4. Capital One Auto Finance
  5. MyAutoLoan

Can you lease a car with bad credit?

Leasing a car allows you to drive a newer car model and could even mean lower monthly payments than financing a new car. If you have bad credit, a car lease could be more expensive. 

Is it easier to lease a car with bad credit?

It is not easier to lease a car with bad credit than to finance a car. This is because leases are typically subject to credit approval just like auto loans. So your credit history, credit score, and other factors will be considered when applying for a lease. 

According to Experian, the average credit score for people who got a lease in the second quarter of 2020 was 729. You can improve your chances of being approved for a car lease by:

  • Putting down a bigger down payment
  • Getting a co-signer
  • Lowering your debt-to-income ratio

If you’ve been turned down for a lease, there are a few possible alternatives including:

  • Taking over someone else’s lease. This is known as a “lease swap” where you take over responsibility of a lease’s original terms. LeaseTrade.com and SwapALease.com are websites that could help you find these opportunities.
  • Buy a less costly used car. It might be easier to qualify for a used car auto loan than trying to lease a car with bad credit.
  • Work with a dealership that has a special financing department. These dealerships work with people who have poorer credit scores. Just be mindful that you’ll likely have a higher interest rate. 

Is it easier to lease a used car with bad credit?

It could be easier to lease a used car rather than a new one with bad credit. A used car will typically be less expensive than a new car, so the likelihood that you’ll be approved could be higher. 

You could increase your chances by making a bigger down payment, getting a co-signer, or lowering your debt-to-income ratio. Make sure to evaluate whether paying a higher interest rate is worth leasing a used car. If you can work on improving your credit and delay leasing a used car for a while, that could make it easier to lease a car. 

How to lease a car with bad credit

If you want to lease a car with bad credit, here are some ways to increase your chances of getting approved:

  • Go to dealerships that have a car model they are more eager to lease. Typically at the end of a year, car manufacturers release new models. Dealerships generally don’t want to keep outdated models on their lots. Hence, they’ll probably be more willing to unload the last model which you can use to your advantage. 
  • Save up a bigger down payment. Having a larger down payment is a strong factor that can work to your benefit when you have bad credit to sway a lender. 
  • Show proof of income. Bring in copies of your pay stubs and other evidence when going to the dealership that shows you have a steady income. 

How to shop for car loans with bad credit

To improve your chances of getting approved for a car loan with bad credit, follow these steps below:

  • Check your credit. Get a copy of your credit report and report any inaccurate information that could be hurting your credit score. 
  • Save for a down payment. Having a sizable down payment could help improve the chances of getting approved for a loan. A down payment reduces the risk to the lender which could make them more willing to work with you.
  • Figure out how much you can realistically afford. Consider fuel, property taxes, insurance, and maintenance in your budget to make sure you can afford the car beyond its sticker price. 

Shop around with different lenders. Talk to your bank or credit union, online lenders, car dealerships, and buy-here, pay-here dealerships. Comparing across different lenders can help you find a loan that fits in your budget and offers the best terms.

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