- Before financing an auto with bad credit, wait until you can save enough money to make a large down payment. This will make it easier to get a loan, even with bad credit, because you will be borrowing a lower amount. It also means you will pay less interest, which is important when you have bad credit because many lenders will charge you a premium interest rate for your auto loan.
- Before shopping for a car, shop around to banks and credit unions to see if you can arrange your own auto loan. Even if you have bad credit, a bank may finance you at a higher interest rate than average if you have accounts there and have been a long-time customer. Credit unions may also be more forgiving of bad credit. Pre-arranging a loan when you have bad credit puts you in a better negotiating position with car dealers. When you have credit challenges and need an auto loan, Consumer Affairs warns that they may try to take advantage of you with high interest, insurance and unneeded warranties.
- If you cannot arrange your own loan, be prepared to deal with car dealers and don't allow them to take advantage of your situation. Consumer Affairs recommends getting a copy of your credit report so you know just how bad your credit really is. This will prevent the dealer from exaggerating it and trying to tack on more interest and fees. Come to an agreement on the car price before you even discuss the loan. Make sure that the interest rate is clearly disclosed and read the paperwork carefully before signing to make sure it's not crammed with insurance, warranties or fees that were not agreed on beforehand. Consumer Affairs says you should expect to pay between 15 and 17 percent, although this can vary by location.
- Once you have gotten your auto loan, look for opportunities to refinance it. Even though you have bad credit, you can start to rebuild it by making your payments on time. After 6 months to a year of paying all your bills as agreed, you may be able to find a bank, credit union or finance company that will refinance your auto loan at a better rate. When you get the initial loan, make sure there is no pre-payment penalty that you must pay in case you are able to refinance.
- Never take an auto off a dealer's lot without finalizing the deal and financing. A common trick is for a dealer to let you take the car while claiming to be able to get you a loan at a certain rate. They make this promise verbally, then suddenly contact you to let you know that the only loan they could find is at a significantly higher rate. Because you already signed the contract and have the car, they insist that you must agree to the overpriced loan. You can prevent this by refusing to take the car until the loan paperwork is complete.
