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Financing a car with bad credit is easier now than it has been for several years. Since emerging from the recent recession, many lenders have relaxed their lending standards and begun lending again to people with lower credit scores. Even if you cannot obtain a loan from a traditional bank, there are many online services like My Car Lender who will be happy to help you.

Planning for Your Purchase Ahead of Time

That said, you need to be smart about arranging your financing.  After all, if you have a credit score of 650 or less, you can expect interest rates in excess of 10%. That means you could end up paying a lot of total interest unless you’re careful. Here’s how to make the most of your financing situation:

  • Building Credit:  Start by getting your credit report for free at Make sure there are no errors on your report and dispute any that you find. Removing mistakes can boost your credit score, thereby decreasing your interest rate and improving your chances of approval. You can also build positive credit by obtaining a secured credit card. Unlike a pre-paid card, these accounts are reported to the major credit agencies and will boost your credit score.
  • Building a Down Payment:  Next, work on building your down payment. Lenders like to see at least 20 percent of the total purchase price as a down payment for new vehicle, and 10 percent for a used one. You may be asked for more if your credit score is very low. Remember, most dealers will accept your existing vehicle in return for a trade allowance, which can be applied to the transaction as a down payment.
  • Building a Budget:  How much do you earn each month before taxes? Take this amount and multiple by .08 (8%). This is a sensible, safe amount to devote to your monthly car payment. Spending much more than this could overtax your budget, leading to late payments and even repossession. Remember, financing a car is a great way to build creditas long as you make your payments on time.

Finance Terms – How Long is Best?

In general, you want to finance for the shortest term possible. Sure, a 60 or 72 month term will lower your monthly payments, but it will result in more total interest paid. If you had good credit and low APR, the difference might not be all that significant. However, with an interest rate of 10% or higher, you want to do everything possible to minimize the amount you pay in interest. Plus, as your vehicle ages, you may have higher maintenance costs, which could cut into your monthly car budget. For this reason, it’s generally best to finance for 24-48 months, whenever possible.

Comparing Rates Online

Just because you have bad credit doesn’t mean that you should take the first loan offer that comes your way. You are safe applying online with multiple lenders, in order to compare rates, as long as you do so within a period of 1.5 months. Given the rise of online “rate-shopping,” FICO has altered their scoring matrix such that multiple applications within a 45-day are only counted as one credit inquiry. This minimizes the negative impact on your credit, and frees you up to find the financing package that suits you best.


About the author: Taylor


Taylor is the founder of He's a seasoned fiction and web writer who has been involved in the automotive industry for nearly a decade. He's currently restoring a 1985 BMW 325e. Email | Twitter | Google+


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