When you have bad credit there is a lot to consider when trying to find the right used car. Often, car buyers with bad credit have to lower their expectations and go with what is financially prudent at the time.
Question to Ask Yourself When Buying Car with Bad Credit.
- What's most important to you, the car you drive or rebuilding your credit with a car loan?
- What's your monthly car expense budget, including the car loan, gasoline, maintenance, and automobile insurance?
- Are the any other options you have that you could use to improve your used car loan?
For question number 1, we recommend using a used car loan to improve your bad credit score. If this is your goal, it's best to buy an inexpensive used car with a loan term shorter than 36 months. With a short term loan you should be able to trade out of the used car at around 18 months.
If, on the other hand, you buy a more expensive newer car that stretches you right to the limit of your budget, you will most likely own the car for a very long time. If you have bad credit and finance a car for 72 months, it is true that your credit score may improve in one or two years and that you would be eligible for better rates and terms, but even after 48 months you will still have too much negative equity to trade the car in
refinancing an auto loan.
To protect you credit rating and improve your credit it is essential that you calculate your monthly car expense before visiting the used car lot. Many car buyers with bad credit fail to do this and end up making an emotional decision based on impulse not on practicality. If you over extend yourself you run the risk of remaining in the spiral of bad credit. If you buy a used car that you can afford, chances are you can break through the bad credit barrier and improve your financial standing.
Lastly are other loan options. The two best options are:
- Wait until you have more money down
- Ask a friend or family member to co-sign
With more money down or a co-signer you will receive better
car loan interest rates. Better rates mean lower payments, and lower payments will give you a better opportunity to increase your credit score.