Sub-Prime Car Loans, How to Buy a New Car With Bad Credit

I don’t advocate for buying a new car, even for people who has a good credit. In terms of value for money, a 1-year-old car is always better than a brand new car from the showroom. The moment you drive it out of the dealership, car value goes down by a couple of thousand bucks. But there are people who want to buy a brand new car.

In this post, I’ll assume the reader had a temporary hardship, due to which regular payments on credit cards and other loans suffered. Resulting in bad credit. Sometimes long term illness or a divorce can put one into bad credit. But, now the reader recovered and have cash to pay off debts, and, is confident on future cash flow to afford auto loan repayment.

So, theoretically, can a person of bad credit secure a sub-prime auto loan?

The answer is, yes!

Fortunately, there are lenders out there that understand this and offer credit terms to those with poor credit history.  It’s simply a different type of loan to them and no emotion is attached.  In this article, we will explore what you should know about the process of getting a car loan when your credit isn’t perfect.  It’s probably easier than you think.

The first thing you will find is that many lenders that specialize in poor credit loans often want to sell you a new car. We know this is counter-intuitive, wouldn’t a used car make more sense? 

Not really, and there are a number of reasons why

• From the lender’s perspective, a new car has more value and therefore offers more money that can be reclaimed if the buyer defaults on the loan.
• The lender also has the assurance that a new-car buyer will actually keep up with payments because their money won’t be diverted to any expensive “old car” repairs.

If you want to buy a new car soon yet have marginal credit, it is best to start planning for the event as early as possible.

Step 1 – Start with your credit report to see how it would look to a lender.  You can get free credit reports from a number of online companies. Sign up with one of these free credit reporting companies as soon as you can.  It’s easy to do.

Your car loan lender might not be looking into your report from the bureau you did. So, it’s important that you get credit reports from each of three reporting agencies.

Step 2 – Get your information corrected. Once you have your credit report, look for accuracy. If you don’t agree with some of the items listed there, raise a dispute. Starting with Step 1 as early as possible is very important as you get time to rectify items in your credit report. Once rectified your credit score should increase.

Step 3 – get pre-approved. If your credit isn’t so great, you will be paying a high-interest rate but some lenders may offer lower rates than others. This is why it’s important to get “pre-approved” by more than one lender. To find out which lenders may be willing to finance people with poor credit, simply search for “bad credit loans” or a similar phrase on the internet.

You will find many lenders and dealerships in your local area that offer this service. You can also do it through the online loan application

Step 4 – Pick a Dealer. Now choose a dealer and see what cars and rates they have to offer.  Generally, this will all be online in the form of “dealers inventory”.  Have some fun and spend some time looking at what cars various dealers have to offer.

If you have the car in mind, look for the dealer that is offering the car at the lowest price. I’d call every car dealer within 30 miles distance from my home.

Step 5 – The next step is to go visit the dealer and check it out.  When you go in, be prepared to talk about the financing.  Bring some personal documents such as a most recent pay stub, a utility bill, and a driver license to establish who you are.

Often, paying a large down payment reduces the interest rate on the loan. Make as much down payment, as possible. you will be surprised to receive a prime rate with a large down payment. I have a good credit score and I paid 50% down payment to receive my auto loan at 0%.

Assuming everything works out, you should be able to drive home in your new car in just a few hours.  The best news is that if you keep up with your payments, you will establishing a new credit history that will eventually lose your old “subprime” to history.  It’s a new you!