How to Purchase a Car With Poor Credit

You can get a car loan with poor credit.

You can get a loan with poor credit, although the process may prove frustrating because of turn-downs or higher interest rates. If you can't get an approval, you can try to find a co-signer or wait until your credit improves.

Effects

Unless paying cash, purchasing a car with poor credit can result in a high interest rate, and, in turn, a high car payment. Some states allow as much as a 29 percent interest rate on a car loan, and subprime lenders are eager to offer you a high rate knowing that you're having a hard time finding an approval.

Prevention

Prevent the high interest rates and payments that can result from poor credit by shopping around--don't take your first offer. Do not sign a loan that you cannot afford.

Solution

If you are having trouble finding a loan approval, a sufficient amount of money down will help. Some lenders will finance a car with equity, meaning you'd have to put enough money down to cover about half the cost of the vehicle--if you suffer a repossession, the lender can sell the vehicle without a loss.

Considerations

Your credit may not be as bad as you think it is. Before you determine that you have poor credit, take a look at your credit report and history. Banks favor borrowers who have a strong income, stable job and address (more than two years). If you are not behind on any payments and can offer proof of strong income, job and address stability, you might not have a problem finding a lender.

References

• Edmunds: Auto Finance Tips; Tips for Subprime Borrowers