Can I Buy A Car With Bad Credit?

Have you ever wanted to know if you can buy a car with bad credit?

This question comes up a lot because everyone needs transportation to and from work. We need transportation in most US cities to take care of errands. And public transportation isn't reliable in every US city. The question is complicated because you may be able to buy a car with bad credit, but at what cost? Does it make sense to try and improve your credit or buy a car that may cost considerably more over time because of the high interest rates. Here is what we can say about buying a car with bad credit.

Credit scores needed to buy a car

*According to a June 2020 Experian report

  • The minimum average credit score needed for new vehicles is 721
  • The minimum average credit score needed for a used vehicle is 657

Car Loan Interest Rates by Credit Scores

While this data is updated periodically - the takeaway here is that buying a car with a credit score below 661 could cost you in interest. Is it worth it to buy a car with bad credit? Maybe it's a situation where your credit can be repaired. If a difference of less than 50 points could be the differentiator in getting approved then it may make sense to try and fix your credit before purchasing.

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How does your credit score cost you when purchasing a car?

Here is an example of how two buyers will pay for the same car:

Let's assume that two people walk in to a car dealership and buy the same vehicle and finance the same amount over the same term. Buyer A has a credit score of 661 and Buyer B has a credit score of 660. For this example we will say the car costs $10,000 and is a used vehicle. Both buyers want a 72 month term. We are assuming the loans will be paid through the entire term.

Over the life of the loan Buyer A pays - $11,946

Over the life of the loan Buyer B pays - $13,801

Now - let's also account for the larger the amount financed the higher the lender will charge in interest and the difference between Great, good, fair, and bad credit buyers will pay very different amounts for the same car. So it's a safe assumption that if you can repair your credit and can wait to make the purchase then do so.

If you cannot wait and must buy a car - be prepared to explain if your credit score is lower than 700. Most lenders will try and work with you, but they will charge more and the process will put you, the buyer, at a disadvantage in the buying process. At the minimum before buying a car with bad credit try and improve your score with these tips.

Easy tips to improve any credit score before buying a car

  1. Pay bills on times - especially car payments
  2. Lower your unsecured debt - i.e. Credit Card debt
  3. Stay away from nonessential credit checks
  4. Keep credit card accounts open

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