How to Purchase a Brand New Car With Poor Credit

Economic downturns often lead to poor credit scores for consumers, which in turn makes getting an automobile loan difficult. It can be particularly challenging to finance a brand new car. But there are ways to get a loan even if you have a weak credit score.

Things You'll Need

• Written-out budget
• Credit report with FICO score
• Car loan comparison calculators

Instructions

1. Evaluate your current finances. You can easily determine if you can afford a car loan in addition to your monthly financial obligations. The loan should be no more than 20 percent of household income.

2. Order your credit report before you begin shopping for a new car. Unscrupulous car dealers may not tell consumers the truth about their credit score. They will exaggerate the negativity to pressure the buyer into accepting a higher interest rate.

3. Make sure your credit report contains your FICO score, which lenders use to determine whether you pay your bills on time. It is based on timeliness of payments, the amount of debt you have in comparison with your income, how long you have been making payments on any debts, how often you have applied for credit, and the number of revolving accounts you have, compared with the number of installment accounts. Your FICO score will be between 300 and 850, and if it is above 725, you are considered creditworthy. (See Resources.)

4. Improve your credit score to avoid paying higher interest rates. First, start paying credit card bills as quickly as you can. When making decisions on loans, lenders will look at how much you owe compared with your income. Next, if you are behind on any bills, get them current and keep them current. This information appears on credit reports and can hurt your chances of getting a new car if you are constantly behind in payments.

5. Apply online to private lending companies that specialize in extending credit to those with less than great credit. Applying online can be more comfortable than in person. Consumeraffairs.com has good advice on finding these lending companies. Many of those it recommends are willing to lend money for a car if you can handle an interest rate that's higher than average.

6. Save for a large down payment. Banks and private lenders are more likely to approve a new car purchase with a sizable down payment. It shows that you are serious about the purchase and that you are responsible with your money. In one sense, it could be seen as buying credit. Sites like Money-zine.com have calculators that can help you determine how much your payment would be using different scenarios. (See Resources.)

7. Shop around and be flexible. When your credit is poor, you can't expect to purchase a Rolls-Royce. You have to be willing to purchase a new car with fewer features and extras. It comes down to purchasing within your means. As your credit improves over time, you can trade up. Shop for banks' car rates at Bankrate.com.

References

• Consumeraffairs.com: Get Your Credit Scores
• MSN Money: Will the Loan Outlive the Car?
• Bankrate.com: Auto Loans

Resources

• My Fico
• Annual Credit Report: Free Credit Report
• Money-zine.com: Car Loan Comparison Calculators