How to Get a Car Loan with Bad Credit & No Down Payment

Getting a car loan with bad credit and no money down is difficult but possible.

Getting a car when you have bad credit is challenging, but not impossible. It requires creativity in seeking alternate solutions to traditional financing. The best way to work around bad credit is to have a larger down payment. However, cars can die at unexpected times so potential buyers may not have access to sufficient cash, either. Fortunately, there are ways to get a car even with such limited resources.

Things You'll Need

• Job
• Pay stubs
• Social Security number
• Driver's license
• Personal references
• Utility bills
• Co-signer, if necessary

Instructions

1. Visit a subprime car dealership that advertises to people with bad credit. Such places often charge high interest and high prices on cars that are older and less reliable. Provide the dealership with check stubs and proof of payment history, and, if necessary, personal references and a co-signer. Trade in another car as down payment rather than putting nothing at all down.

2. Find a car through a private party and ask if the seller will finance it for you. Some sellers may consider this unconventional arrangement, particularly if you are not trying to buy an expensive car. Reassure the buyer that you intend to take the financing as seriously as any other loan. Show pay stubs and other proof of responsible payment history such as utilities and rent and provide references and a co-signer to convince sellers to consider this idea.

3. Purchase a cheap used car from a private seller for a few hundred dollars and use the money that you would spend on car payments on repairs that emerge instead. Repairs might be frequent, but even if you estimate $2,000 worth of repairs in the first year, it still can be less expensive than a year of payments. There is also no guarantee that a more expensive used car would not need repairs.

4. Look for loans that even with no money down allow you to negotiate to a lower interest rate after making payments on time for a certain period. Do not assume that you are stuck with prohibitive terms for the life of the loan. Remember that credit scores can change, and if your credit improves you may have access to a better loan.

5. Continue to investigate conventional dealerships. Do not assume that you can only get a loan from a subprime dealership. Conventional dealerships do work with buyers with bad credit, particularly during bad economic times. Expect to pay a higher interest rate, but it still can be lower than a subprime loan and other payment terms may not be as prohibitive.

Tips & Warnings

• Check your credit report before you go car shopping and confirm that your credit is indeed bad. Choose a car based on price and condition rather than style. Do some research about the reliability history of car models you are considering. Ask family and friends for help, even if all they can offer is a referral to someone they know who is selling a cheap, old car.

• If you buy a car from a place that requires you to make payments every payday, do not miss a payment. Such places can repossess a car after just one or two missed payments.Watch out for scams. Although higher interest rates are standard for borrowers with bad credit, lenders will sometimes include unnecessary extras such as extended warranties. Avoid trading in a car that you still owe money on as this will make your payments higher.

References

• Car Buying Tips: Bad Credit Auto Loans and Scams to Avoid
• Edmunds How to Get a Car Loan with Bad Credit