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Bad Credit? The Ins and Outs of Buying a Car

Teen driver on front seat of a car being handed the keys by an adult to illustrate whether it is time to re-examine the minimum driving age for teen drivers.

Buying a car with excellent credit can be a fairly simple experience – pick the car, color, options – sign the papers and drive off. But, if your credit is less than perfect or labeled as “bad”, you’re in for a more difficult time. And, getting auto insurance for your new or used ride may be the least of your worries.

While July auto industry projections are aimed at a near-record sales volume of 17.5 million vehicles this year, one fact remains. According to Kelley Blue Book, fewer people than ever before are buying new cars, SUVs and trucks when it comes to outright purchases where financing isn’t involved.

In the most recent Experian “State of the Finance Market” report, the proportion of customers who financed new vehicles rose to 84.9 percent in the first quarter of 2015. As for used-vehicle purchases, a record 55.6 percent were being financed at the same time. And, those numbers were not exclusively the result of what the industry refers to as “well-qualified” customers driving that increase.

Fortunately, there are plenty of opportunities to finance a vehicle even for those drivers with less-than-stellar credit. Of course, that doesn’t necessarily mean those opportunities are good.

Because most Americans have good enough credit to qualify for auto financing, the majority are usually approved for a car loan. On the other hand, many people in bad debt situations, however they got there, or those with credit scores below 620, where purchasing options are more scarce, are better off not buying, according to Greg McBride, chief financial analyst for

That said, individuals with poor credit may be required to have a cosigner in order to qualify for a car loan, and that can create a number of other issues. But, be forewarned – a cosigned loan will appear on both the primary borrower’s and the cosigner’s credit reports. In addition, late payments and default will appear on both. So, before you agree to cosign for someone, keep this in mind – if the person you cosign for doesn’t pay the debt, they will damage your credit report and scores, as well.

One of the first things you should do when you’re about to enter the vehicle-purchasing process is check your credit scores. Before you set out to finance a vehicle, Justin Leach, manager of Public Relations for Toyota/Lexus Financial Services, recommends you obtain a copy of your credit report from all three major credit reporting agencies. Read through each one and make sure all the credit history and personal information is up to date.

If you notice discrepancies or errors, it won’t cost you anything to dispute them. Better you catch the errors before the car dealership does and refuses to finance your dream ride. Once you file a dispute, the bureau and your creditor must investigate it and correct or remove any information that isn’t accurate. A few minor blemishes on your report won’t hurt you, but errors that can ruin your chance of obtaining financing can be quite damaging.

Having a good idea where your credit worthiness stands can simplify your search for financing at a rate that is fair. Often, the worse your credit is the bigger the down payment required and the higher your interest rate. Furthermore, some dealers will take advantage of your credit situation to hit you with monthly loan payments that are sure to become a hardship. Experts suggest that credit-challenged consumers start with a bank or credit union with whom they normally do business, and check with other lenders as well.

As with almost anything you buy, compare before committing. And, beware of yo-yo scams in which dealers are the initial creditor in car financing, then sell your contract to another lender. Generally, they allow a consumer to drive a car off the lot before their financing is finalized, but can quickly assert their right to unwind the deal if they don’t like the terms offered by the new lender.

What follows is the dealer calls the consumer back to the showroom to sign a completely new loan with a higher interest rate or other changes. And, in worst-case scenarios, some dealers actually refuse to return the customer’s trade-in vehicle or down payment, or will tack on daily-use charges that can total hundreds, or even thousands of dollars.

Just remember – your credit score will dictate the kind of car you can buy, the interest rate you will pay, which could lead to a much larger loan total than someone with good credit, and higher monthly payments as a result of the higher interest.

While you can’t always control what happens to your credit – whether it takes a hit due to illness, a death or a divorce – don’t ignore the importance of a good credit score.

The same can be said about your driving record. The more you avoid accidents and moving violations the better chance you’ll have of getting the best auto insurance rates. Why not get a free auto insurance quote comparison today?


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