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If you are in the market for bad credit auto loans, then these 7 steps for financing a vehicle with poor credit are for you. And if you are anything like most Americans, you already know that automobiles are an essential purchase here in the U.S. A poor credit score can be a serious situation for customers with weak credit.

However, auto loan seekers can still get bad credit auto loans at a smaller interest rate if they learn to improve their credit score before getting behind the wheel of their new vehicle. But buyers need to be extra careful. This type of vehicle finance may have higher interest rates, and eventually may lead to being overcharged for having a weak credit score.



One of the most essential things that you need to consider doing before going car shopping is to check your credit score. Understand your credit. Check for all negative items, if any. Monitor your FICO credit score. Look for these flags:

  1. Overdue accounts
  2. Errors and disputes
  3. Unpaid debts
Consider these important steps:
  1. Make on-time payments
  2. Clear current existing debt
  3. Don’t apply for multiple credit cards


In the year before your bad credit car loan application, you need to pay more attention to your credit score and should be extra careful to avoid additional poor credit items.

Avoid these possible red alerts:
  1. Late rent
  2. CC balance transfer
  3. Tax-liens
  4. Bankruptcy


When you are search for the right car or truck loans for your purchase, comparison shopping works best. Check and compare financing terms and interest rates for bad credit auto loans provided by a variety of lenders, not to mention that it may assist you to find the monthly amount that you’ll actually be paying.


Before you pick the car brand and model, do your homework. It is typical to be enticed during car shopping and misjudge your affordability. Therefore, check your budget, consider your savings and other expenses before making your choice.


By putting a large upfront payment for your car purchase, you eventually reduce your outstanding debt incurred through financing. Therefore, it’s, generally a good idea to save some money for your car or truck loan down payment.


Getting pre-approved with banks, credit unions, and other lenders is a savvy step for all car buyers who have poor credit. Because credit unions are non-profits, they are more open to lending to a borrower with a poor credit. Be sure to remember that the requirements and interest rates may vary. This is one reason why it is best to compare and shop around before selecting one.

Pre-Approval Often Requires:
  1. Check your credit ranking
  2. Find non-profit credit unions and auto lenders that provide options for pre-approval
  3. Fill out the loan application and provide essential documents|Provide essential documents and fill out the loan application


Your bank or lender will provide more than a few loan papers when you apply for bad credit vehicle financing. It’s very important for you to read all the paperwork and understand the loan terms. Sign the agreement only after ensuring and reading that the terms listed on the paperwork match what the dealership verbally agreed to.

How to Finance a Car the Right Way

The best way to buy a car is with cash. It can stop you from overspending. It also avoids paying interest on a loan for years. Of course, paying cash isn’t always an option.

Sometimes you just have to have a new ride, especially if you have to drive to get to work. But when you find yourself in this situation, what you don’t want to do is simply pick a car from the dealer and accept whatever financing terms they offer.

Instead, use these steps to make sure you’re financing your car in the smartest way possible.

How to Finance a Car

1. Get your credit score in order first

Before shopping for a vehicle, check your credit score. Chances are you can check it for free. However, some free options are actually based on estimates. So they may not actually show the score lenders will see. Because of this, you might want to spring for your official FICO score from at least one, if not two or all three, credit bureaus.

(Remember, though, there are many different FICO and VantageScore models. Your lender may not pull the exact model you purchase. So your score could still vary, though usually not by more than a few points.)

Is your credit score in the low-to-average range? If possible, take some time to bring your score up before you apply for auto financing. You’d be amazed at how much interest you can save just by boosting your credit score.

Not sure where to start? Check out out these articles:

11 Simple Ways to Improve Your Credit Score Today

Podcast: How to Improve Your FICO Score with Credit Expert Tom Quinn

How to Build Credit When You Are Just Starting Out (the Smart Way)

Yes, improving your credit score can take time. But if there’s any way you can take public transportation, rideshare, or stretch your current vehicle’s life for a few months, it’ll be worth your while.

2. Save up for a down payment, or trade in

Again, this is a step you’ll need to start a few months before it’s time to purchase your next vehicle. It’s possible to qualify for financing for a vehicle with no money down. But this isn’t the ideal way to finance a vehicle.

For one thing, 100 percent financing will get you a much larger loan and a larger payment. Plus, putting no money down generally means you’ll have a higher interest rate. And since cars depreciate quickly, you may owe more on the car than it’s worth as soon as you drive off the lot.

Your best bet is to put at least ten to 20 percent towards a down payment. However, since used cars depreciate more slowly, you can get away with a smaller down payment on an older car. However, if you have a low credit score, be ready to offset it with a larger down payment. This can get you into a much better financing arrangement.

As you’re calculating your down payment, be sure to account for the value of your trade in. Even an older vehicle can bring some extra money to the table when you’re buying a new vehicle. Use tools like Kelley Blue Book to figure out about what your trade in vehicle will be worth.

3. Get an idea of what you need to spend

Once you have your credit score and down payment sorted, it’s time to start shopping around. This is where you need to make your list of minimal must-haves for your vehicle. The shorter this list, the more options you’ll have to choose from.

Your must-have list might include several features. For example, the amount of seating or ability to haul extra stuff, a certain level of gas efficiency, or a certain rating for used vehicles may be important to you. Once you have a must-have list, start looking around on sites like Edmunds. This will give you an idea of what you’ll need to spend.

Your spending level will depend on the type of vehicle you purchase. Larger vehicles are more expensive, as are newer and lower mileage options. Your goal is to get what you really need out of a vehicle without spending more than you absolutely must.

4. Understand taxes and fees

Before you can shop for financing, figure out exactly how much you’re likely to pay in additional fees and taxes. This can include dealer and licensing fees, for one.

You’ll want to pay these additional fees in cash. So this can eat into the cash you have available for your down payment. It’s important to know this before you shop for financing.

You can get an estimate of additional taxes and fees with this car payment calculator from CarMax. This is just an estimate, but it’ll give you a starting place. If you want a more specific estimate, check your local DMV/BMV site or call a local dealership.

Subtract your taxes and fees from the cash you have on hand to buy a new car, and that’s your total down payment amount.

5. Shop around for financing first

Now that you have all this done, you might think you’re ready to walk into a dealer. Not so fast!

Dealerships don’t often offer the best financing terms, especially for those with less than perfect credit or those buying used vehicles.

You should check at least two or three potential options for financing. Rate shopping won’t harm your credit score, so long as you do your shopping within a two-week period. And shopping around can help you find the best possible financing terms.

Where should you shop around? You can look online for auto financing, and you can even compare potential rates with some interfaces. But you should definitely check out one or two local credit unions, too. They often offer lower rates and better terms, particularly for those with less-than-perfect credit.

Key Resource: Get multiple car loan quotes for free from LendingTree.

6. Opt for a shorter term when possible

Lenders typically give you a few financing options to choose. You’ll likely notice that a lower term gets you a lower interest rate, as well. Plus, financing for a shorter terms means you’re taking a bigger bite of the loan’s principal with every payment. This means that you’re less likely to owe more on the vehicle than it’s worth at any point in the life of the loan.

Of course, you don’t want to choose a shorter term than you can’t actually afford. If you jack your monthly payment up too high, you risk missing payments or having to make them late. And that can tank your credit score and lead to additional fees.

7. Show up with financing in hand

One of the advantages of shopping around for financing before you go to the dealership is that you can use this financing to negotiate with the dealer. Having secured financing gives you leverage to negotiate for a lower purchase price on a vehicle. But you can also challenge the dealer to come up with a better financing option for you, if possible.

You won’t always be able to get a better deal, but sometimes you can.

8. Consider gap insurance, if necessary

When you buy car insurance, chances are that it will only cover the car’s current value. So if you owe $5,000 but total your car when it’s valued at $4,500, you’ll be on the hook for the extra $500.

With those low dollar amounts, that’s not a huge deal. But what if you were on the hook for a few thousand bucks? This is an expense many of us can’t handle.

That’s where gap insurance comes in. It essentially pays the difference between your car’s actual value and what you owe to the lender. If you’re able to follow all these smart financing steps, you shouldn’t need gap insurance because you’ll have a good down payment.

But if that’s just not possible, gap insurance can protect you from going even further in the hole if you total your car while you’re upside down on the loan.

9. Look towards refinancing in the future

Finally, what do you do if you can’t follow all these smart financing steps? For example, what if you have to buy a car before you have time to improve your credit score?

In this case, start off by doing the best you can. Buy an older, cheaper car, for one. But then keep an eye on your credit score and auto loan rates. You may be able to refinance in the future. And if you can trim your interest rate by a few points, that could be well worth your while!

Financing or Leasing a Car

Determine How Much You Can Afford

Before you finance or lease a car, look at your financial situation to make sure you have enough income to cover your monthly living expenses. You may want to use the “Make a Budget” worksheet as a guide.

Should you take on a new monthly payment? Finance or lease a car only when you can afford to take on a new payment. Saving for a down payment or trading in a car can reduce the amount you need to finance or lease, which then lowers your financing or leasing costs.

Do you have a trade-in? In some cases, your trade-in will take care of the down payment on your new car. But if you still owe money on your car, trading it in might not help much. If you owe more than the car is worth, that’s called negative equity, which can affect the financing of your new car or the lease agreement. So, check “Auto Trade-ins and Negative Equity” before you do. And consider paying down the debt before you buy or lease another car. If you do use the car for a trade-in, ask how the negative equity affects your new financing or lease agreement. For example, it may increase the length of your financing agreement or the amount of your monthly payment.

Get a Copy of Your Credit Report

It’s a good idea to check your credit report and credit score when you are considering financing or leasing a car, and before you make any major purchase. You can get a free copy of your report from each of the three nationwide reporting agencies every 12 months. To order, visit, call 1-877-322-8228, or complete the Annual Credit Report Request form and mail it to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

If you want a copy of your credit report, but have already gotten your free copy, you can buy your report for a small fee. Contact any of the three nationwide credit reporting agencies:

  • Equifax Credit Information Services: 1-800-685-1111
  • Experian: 1-888-397-3742
  • TransUnion Corporation: 1-800-916-8800

Usually, you will get your credit score after you apply for financing or a lease. You also may find a free copy of your credit score on your credit statements.

For more information about credit reports and credit scores, see:

  • Free Credit Reports
  • Disputing Errors on Credit Reports
  • Credit Scores

What About a Co-signer?

If you don’t have a credit history – or a strong credit history – a creditor may require that you have a co-signer on the finance contract or lease agreement. Co-signers assume equal responsibility for the contract. The account payment history will appear on your credit report and the co-signer’s – which means late payments will hurt both of your credit. If you can’t pay what you owe, your co-signor will have to. Make sure that both you and the co-signer know the terms of the contract and can afford to take on the payments. For more information about co-signing your finance contract, see Co-signing a Loan.


Know Your Financing Options

You have two financing options: direct lending or dealership financing.

Direct Lending

You might borrow money directly from a bank, finance company, or credit union. In your loan, you agree to pay the amount financed, plus a finance charge, over a period of time. Once you’re ready to buy a car from a dealer, you use this loan to pay for the car.

If you chose to finance your car this way, you can:

  • Comparison shop. You get to shop around and ask several lenders about their credit terms even before you decide to buy a specific car.
  • Get your credit terms in advance. By getting preapproval for financing before you shop for a car, you can know the terms in advance, including the annual percentage rate (APR), length of term, and maximum amount. Take this information to the dealer to improve your ability to negotiate.

Dealership Financing

You might apply for financing through the dealership. You and a dealer enter into a contract where you buy a car and also agree to pay, over a period of time, the amount financed plus a finance charge. The dealer typically sells the contract to a bank, finance company or credit union that services the account and collects your payments.

Dealership financing may offer you:

  • Convenience. Dealers offer cars and financing in one place and may have extended hours, like evenings and weekends.
  • Multiple financing options. The dealer’s relationships with a variety of banks and finance companies may mean it can offer you a range of financing choices.
  • Special programs. Dealers sometimes offer manufacturer-sponsored, low-rate or incentive programs to buyers. The programs may be limited to certain cars or may have special requirements, like a larger down payment or shorter contract length (36 or 48 months). These programs might require a strong credit rating; check to see if you qualify.

Shop for the Best Financing Deal

Before you finance a car, shop around and compare the financing terms offered by more than one creditor. You are shopping for two products: the financing and the car. Negotiate the terms and consider several offers. Comparison shop to find both the car and the finance terms that best suit your needs.

Take the time to know and understand the terms, conditions, and costs to finance a car before you sign a contract. Know that the total amount you will pay will depend on several factors, including:

  • the price you negotiate for the car
  • the Annual Percentage Rate (APR), which may be negotiable, and
  • the length of the credit contract

Many creditors now offer longer-term credit, such as 72 or 84 months to pay. These contracts can reduce your monthly payments, but they may have high rates. And you’ll be paying for longer. Cars lose value quickly once you drive off the lot. So, with longer-term financing, you could end up owing more than the car is worth.

If you sign a contract, get a copy of the signed papers before you leave the dealer or other creditor. Make sure you understand whether the deal is final before you leave in your new car.

Inside advice on getting the best deal on a new car

WhichCar sat down with wheeler-dealer Trev (not his real name) who told us the best way to get the a great deal on your next car is to be confident but realistic when it comes to negotiating a price.


“The biggest mistake people make is asking a salesperson ‘what’s your best price?’, Trev stresses. “When you ask for the best price he’ll just take a $1000 off. The best way to do it is offer them a price.

“Say something like ‘your car’s advertised for $38,000, we’ll pay $35,000 and give you a deposit right now’ and then they’ll come back with $36,000 or $35,500 or give you the nod. You’ll be very surprised how sometimes they just want the deal done.”

“Their objective is to keep as much margin in it, but when a deal’s on the table that’s when they make a decision, that’s how you get the best out of a deal.

“If you’re not confident in putting a price just tell them ‘we’re here to buy the car today, we’re prepared to give you a deposit on the car right now’, that gets the salesperson’s ears up.”

“They have people coming in every day wanting this and that, so know what you’re buying and go in there and negotiate a price.”


“People will try and bloody string the last absolute bargain-arsed deal and when the deal’s done they’ll want a tank of petrol and free car washes for the next 10 years,” says Trev.

“You can’t have a car advertised for $25,000 and you offer them 10 or 15 grand, that’s just ridiculous. Everything’s got a commercial value, and with cars you’ve just got to work out what it’s worth.”

“You have to think of the price over the period that you’ll own the car. If you want to pay $22,000 but end up paying $23,200, that’s 1200 bucks over four years, which is a dollar a day or something. It’s not even worth sweating about. People put so much effort into haggling then they’ll go spend 400 bucks on a dinner. You can just absolutely get yourself into a spin.”


“You’ll do a better deal at the end of the month,” admits Trev. “And definitely at the end of the financial year. It’s sell, sell, sell then, particularly on new cars.

“You can go to a car dealer, a lot of whom get rebates from manufacturers when they sell X amount. When I was working for a prestige dealer there was a factory bonus on certain model and they had to sell two more for the month, so it was in their interest to almost give them away. They might have lost $1000-2000 on the whole deal but the rebate would be worth thousands.

“Getting a good deal is not so much based on the car on the day, it’s how the dealer is situated. They might be having a really lean month so they’ll settle for anything or if they’re having a really good month they might not be as obliging.”

Trev adds that you should haggle over the full on-road price so there are no surprises after you sign, but don’t expect things like taxes and registration to be waived.

“They’re pretty fixed those prices, but if they want to sell a car they’ll waive things like the delivery fee, believe me. Everything is negotiable.” 


“There’s a process to it, if you tell the dealer you’re just there to look at the car they’ll put the pressure on you. You have to be quite clear that you’re not buying today you’re just looking at the car. Otherwise they’ll start putting the pills on you to buy the car and that’s when the problems happen. That’s what they’re there for but it’s all about the way you handle it.”


Trev says it’s no use playing hard to get once you’ve made an offer, such as pretending to want to shop around more while they consider your price.

“When you offer the salesperson a price they’ll usually speak with their manager. Don’t pretend to go elsewhere and ask them to get back to you. You might as well get a price out of them while you’re there. That makes you look serious.

“When you say you’re leaving they’ll just wait for you, they won’t call or text you a price. They’re not too keen on that because you could show that price to someone else. Just say ‘we’re here in store and want to buy’.”


“They’re just bloody people,” says Trev. “I know it’s a big purchase and you’ve got to be a bit careful but in general terms you can’t really make a mistake buying a new car.

“It’s not like you can go and pay 28 grand and someone’s going to go and buy the same thing for $22,000. You’re gonna pay $25,000 or you’re gonna pay $24,200 and if you get an absolute bargain you might get a grand or $1500 extra off it. The expensive cars might have a little bit more in them.”


“Buying the car is one thing but getting the money to pay for it, particularly on finance, that’s where the dealer makes all the money these days. That’s what they literally do, they shut the guts out of the sale and then they walk you into the aftermarket person who’ll want to sell you paint protection and window tints and all this sort of stuff.

“To be truthful you don’t need one bit of it and that’s where they make all their money. They sell you an extended warranty and get a bit of money out of finance and suddenly they’ve got a couple of grand out of you.”

How to negotiate a car price: top tips

It’s commonly stated that a car is the among the biggest purchases we’ll make in a lifetime – often second only to buying our home. It’s a big decision, and not one to be taken lightly. And, although everybody wants to get a good deal, many find haggling to be a very unpleasant experience.

It needn’t be an ordeal, though. Our guide will help you to confidently negotiate with your dealer.

Doing your homework to choose a car

When you’re in the company of a car salesman, it’s of enormous benefit to have made a clear decision on exactly what car you’re after. This should be in your mind at the very beginning of your car-buying process.

When test-driving a car, or even looking at them online, pay specific attention to which aspects you like, and which you dislike. Build a shortlist of cars up and then eliminate them one by one. Once you’ve settled on a final choice, you’re in a position to decide on specifics, like your ideal specification, colour and whether you want a manual or an automatic gearbox. The more specific you are with what you want, the stronger your position in the showroom.

Of course, there’s a huge number of cars on the market, and we’ve created a guide to choosing a car that’s right for you. We can also guide you through the many desirable features you can choose, with our feature about optional extras.

If you’ve decided on your perfect car there are useful steps you can perform before visiting the dealership. The website of its manufacturer may have specific deals that’ll help you – it’s commonplace to find financial incentives such as discounts or reduced rate finance – on certain models in a drive to increase sales. Our tips and advice section includes a feature that explains car finance to further increase your confidence in the showroom.

You may also find special editions available – these cars are often only on sale for a limited period, but can add desirable features for very little additional money.

Batch & Ginny drive: Ford Fiesta – Carbuyer Car of the Year 2019

  • video playing

Know the price

Before you can negotiate, you need to know what the official recommended price of the car is. It’ll usually be listed on the manufacturer’s website, and most carmakers publish brochures and price lists that outline the purchase price of a car and any optional extras available. If in doubt, our sister magazine Auto Express includes the latest figures in every issue.

Having a specification in mind, and knowing the manufacturer’s recommended price for it, puts you in a strong position to negotiate. You can also immediately pick up on any attempts the dealer might make to sell you a different model.

If you’ve set your heart on a specific model, be wary of offers of special deals on a lower-specification car. It’s rare that a dealer will go out of their way to save you money – suggesting an alternative model is often more beneficial to the dealer than it is to you. Unless the deal is demonstrably worthwhile, stick to your guns, as you could end up sorely missing features you were looking forward to in your new car.

Keep calm for a better deal

Car salesmen are often genuinely very pleasant people, but bear in mind that enjoying a relaxed, convivial atmosphere can lead to you dropping your guard. These days, sales executives are increasingly well trained and the most effective ones can exploit a relaxed, cheerful customer to their advantage.

Never lose sight of your objective. You haven’t visited the car dealership today to make a new friend, although this can often happen as a happy fringe benefit. Your sole reason for sitting at the salesman’s desk is to get the best deal possible while his job is to make as much profit for his company as he can.

If the first deal a salesman offers you actually exceeds your expectations, try not to make this immediately obvious. Remember, you’re about to spend thousands of pounds, so keeping a cool head is vital. Persistent negotiators can secure further discounts, so don’t accept the first figure you’re given.

Play your cards close to your chest

A dealer will usually offer a better deal on a car that already sits in their stock than one that has to be ordered for you specially. It may be that a dealership has a car in stock that exactly matches your requirements – but it can help if you don’t immediately admit this to the salesman.

With so many options available on most cars, it’s rare for any two to be exactly the same. With proper research, you’ll know which optional extras are available for the car you’re considering, so you can manufacture a requirement that means the car you’re offered isn’t a 100% match for the car you’re looking to buy. If the car that you’re offered is right for you in every way, only you can know that. Better still, if there’s a specific feature available that you know the offered car doesn’t have, you can exploit this to your advantage.

For example, on a car where power-folding mirrors are available as an option, you might add these as a requirement once you’ve been offered a car from the dealer’s stock. You’ll then have the upper hand – the sales executive will have to make the deal attractive to make up for it not being exactly the car you want. However, since this wasn’t actually a feature you initially had your heart set on, you won’t miss it.

Don’t be afraid of finance

If you’re planning to buy your new car outright, it may be wise to initially conceal this from your car dealer. It’s usually in a dealer’s interest to sell cars on finance, as there are often manufacturer-subsidised incentives that can make these packages quite attractive.

While being receptive to the idea of finance can pave the way to an improved offers, don’t be completely dismissive of the dealer’s financial packages. In some cases it really is cheaper to use finance provided by the dealer than to borrow money from your bank. Our guide to car financing explains the options open to you.

Remember that until you sign for anything, you can walk away from the deal at any point. An equivocal ‘I’m not sure yet’ can often help negotiations; until the contracts come out, how you’re going to be paying for the car is your business, not the dealer’s.

Be nice

While car dealers are likely to be friendly and you need to be aware of this, playing hardball and coming across as aloof and standoffish can dent your chances of getting a good deal. Entering into negotiations when buying a car can be compared to an elaborate dance, as you and the dealer work out where the other stands. Be sure to maintain friendly relations throughout this process, as the better the deal you get, the less money the dealer will make when it comes to bonus time. If they like you, they’re likely to give more ground.

Don’t rush

It’s all too easy to buy a car in a rush: the alluring nature of a new car can be strong, as can buying motivations like a growing family or a new job. Whatever you do, keep it to yourself if you need a car quickly. If a dealer is given the impression that you’re desperate for a car, they may feel that they needn’t offer their sharpest deal to get your custom.

Do a background check

If you’re buying a used car, be sure to run a background check on it. Companies like HPI, the AA and the RAC will make sure there’s no outstanding finance on a car and it hasn’t been stolen or written off. All they need to do this is a number plate. While many dealers will provide background checks on the cars they sell for you, a quick phone call to the checking company to confirm the details provided is always a good idea. If any problems do show up, walk away from the deal politely, but immediately.

Get a detailed quote before haggling

Make sure you know exactly what you’re negotiating for when buying a new car. Some salespeople may use what’s known as a ‘stacked deal’. This is where they include loads of options (which you may or may not want) such as paint protection, floor mats or an extended warranty, before removing these items to drop the price when you start haggling. This allows you to think you’re getting a great deal and are an expert negotiator, when in fact it’s the dealer who’s deploying their (slightly underhand) skills. Our insider tips on the tricks used by car dealers should give further help in this area.

Ask for extra

If the dealer is adamant that there’s no room for negotiation on price, you can still ask for some freebies to be thrown in. The least you should expect with a purchase of this magnitude is a full tank of fuel and a set of car mats; a free sat-nav system or breakdown cover can also cost dealers little, but may sweeten the deal significantly for you.

Shop around

It can be of great benefit to buy a from a dealer close to where you live, as it makes life easy if you need to report an issues with your new car. Warrantable items can be attended to with greater convenience, and servicing is made simple, too. Nonetheless, getting quotes in writing from a number of dealers from the same manufacturer or franchise before showing these to your local dealer can help significantly when it comes to negotiations – even if they can’t better the deal offered by other dealers, they may be able to match it.

Whatever car you’re after, or deal you’re offered, there’s one thing it’s always worth bearing in mind when buying a new car: with nearly 2.5 million new cars sold each year in the UK, the power and the choice is firmly in your hands.