Financing a New Car with Bad Credit

Whether you have poor credit or absolutely no credit, there are several ways to finance a good, new vehicle. You don't have to be stuck driving a broken down, undependable heap; you can get financed for a car that you'll be proud to drive, even if you have little or no money for a down payment. For instance, credit unions can be quite lenient on new car loans. Join a local credit union, and after you've been a member for a few months apply for a loan. But candidly explain any credit problems that you may have. Credit unions typically tend to be more interested in your current financial situation than your past credit history. Both credit unions and banks will usually require a down payment of about twenty- to twenty-five percent of the price of the car you'll be buying. If you can afford such a down payment and the monthly payments, you'll probably be able to finance a new car through the credit union, even though your credit file may be somewhat suspect.

However, if you're refused credit by the credit union and banks as well, then try to arrange financing through a car dealership, preferably a larger one in your area. Finance companies work with virtually every car dealership, but the larger dealers generally have greater financing leverage and more options. What's more, the major car manufacturers operate their own finance companies to help their dealers sell more cars. A dealer who can offer instant financing through the manufacturer can often win a sale without the customer leaving the showroom. Many different financing arrangements are available, so even customers with damaged credit are good prospects for auto dealer financing.

Additionally, larger dealers create huge profits for their affiliated finance companies, so they oftentimes can command preferential treatment, including credit approval on borderline or questionable loans. The bottom line is that if the car you select matches what you can afford, there's probably a program available that will get you financed.

Before you select your car, ask the salesman or credit manager about the down payment and interest rate you'll be paying (they'll both be dependent upon your credit rating). The finance company will give the dealership's credit manager their minimum terms, but some dealers may charge a higher interest rate and pocket the difference, especially if they suspect that you've got few other options. Nevertheless, negotiate everything – vehicle price, interest rate, and down payment. If you attempted to obtain financing through a credit union or bank, you'll have some basis for comparison, even if you were rejected. Needless to say, with poor credit you won't get the most advantageous financing, but you may find the car that meets your needs on terms that you can afford. And after you've built a history of on-time payments (usually twelve- to eighteen months), you'll probably be able to refinance into a better rate.

If you can't obtain financing through the dealership, you might consider a cosigner that will pledge his or her good credit for your loan. Lenders will overlook your poor credit record when you have a cosigner whose credit is strong. But make absolutely certain to be faithful to your obligation, because if you default you'll put at risk the cosigner's credit, and possibly your relationship with the person that trusted you with his or her good name.