How to Finance a Car With Bad Credit History

Bad credit doesn't have to keep you from getting financed.

Bad credit weakens your purchasing power when it comes to cars, homes and anything else normally financed. The important thing to remember is that you are not alone; an estimated 110 million consumers had bad credit ratings by the end of 2008. Learn how to be resilient and get financed for a car loan with bad credit.

Instructions

1. Gather the documents required for applying for bad-credit auto financing and keep everything together in a folder. Most banks and lending institutions require proof of income (such as a paycheck stub) from the past 30 days, proof of residency (utility or phone bill), letter of bankruptcy discharge (if applicable) and proof of auto insurance.

2. Visit your local bank or credit union to apply for an auto loan. Dress professionally and be upfront with the loan officer about your credit history. Explain your need for an auto loan and your reasons for past credit troubles. If your local bank will not help you, visit a reputable car dealer to apply for indirect auto financing. Dealers usually work with auto finance companies and institutions that you may not have access to.

3. Ask a family member or close friend to co-sign for you if you are unable to get approved for bank or dealer financing. Convincing someone with good credit to co-sign for someone with bad credit can be difficult. Don't pressure or push him. Give him time to make his decision. Be sure to give your word the loan will be paid in a timely manner.

4. Find a reputable dealer that offers in-house financing, if all else fails. In-house financing, usually called "buy-here-pay-here" or "tote-the-note," is similar to owner financing in real estate. Unfortunately, most in-house financing will not help you re-establish your credit, but it will help you get an automobile when you need one.

Tips & Warnings

• Ask your dealer or banker what it would take for her to make you an auto loan. Sometimes an additional down payment can persuade a lender to approve the loan.

• Be careful if you are forced to do business with a "buy-here-pay-here" car dealership. Some of these dealers overcharge for the vehicle and charge very high interest rates.

References

• Edmunds
• Business Wire