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What Are the Pros and Cons of Buying a Car with Bad Credit?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 21 April 2018
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Attempting to buy a car with bad credit is a task that presents some unique opportunities as well as potential risks that should be considered closely. It is not unusual for anyone buying a car with bad credit to do so both out of the necessity of securing reliable transportation but also as a means of beginning to rebuild damaged credit after some sort of financial crisis. Before moving forward with the plan to buy, take some time to consider issues such as the type of interest rates and terms that can be secured, the ability to manage a car payment, and what type of conditions may be necessary in order to secure a car loan of any type.

One of the major considerations when buying a car with bad credit is the terms that lenders are willing to extend. There are a number of bad credit car loans on the market today, with most of them requiring a higher rate of interest and repayment terms that may not be the best. Some of these loans also depart from the traditional monthly installment plan and require weekly or semi-weekly payments. There is even the likelihood that the lender will require a significant down payment in order to consider approving the loan.

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Before choosing to go with one of these high-risk car loans, look closely at both the amount of those payments and the impact they will have on the household budget. Keep in mind that if public transportation or some other means of conveyance can be used for even another year, there is a chance of securing a loan with better terms. While it may not be the ideal circumstances, waiting a little while before buying a car with bad credit could mean saving a lot of money on interest in the long run.

Another possibility when buying a car with bad credit is to obtain a co-signer, such as a friend or relative. Lenders may be willing to extend better terms and interest rates if the co-signer has decent credit. One of the potential pitfalls is that if the borrower should fall behind in the payments, the credit rating of the co-signer may also be adversely affected. Before using this strategy for buying a car with bad credit, make sure the payments can be met each month without fail.

While it is good to consider the possible drawbacks associated with different means of buying a car with bad credit, attention must also be given to the potential benefits of the arrangement. Owning the car means the ability to avoid expenses such as bus and tax fares, as well as reducing dependence on others for transportation to and from work, or even for a quick run to the grocery store. In terms of credit, choosing a lender that does report activity to the credit bureaus on a monthly basis will mean a positive entry to help offset some of the negative data on the report. As long as it is possible to obtain the best possible terms with a high risk car loan and make the payments on time, there is a good chance that in a few years the borrower will see his or her credit improved sufficiently to quality for more competitive car loans.

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Sporkasia
Post 3

I had a friend who lived in an apartment and was turned down for a home mortgage because of her credit history. When her car transmission broke, she assumed she wouldn't be able to get a car loan because that was about the same time she had been rejected for the home mortgage.

After several months of trying to live without a vehicle, she asked her parents to help her get a used car. Her parents went to a dealership with her. Once she found a car and explained her situation to the salesman, he suggested that she let him check her credit and see what they could do.

As it turned out, she was able to get a really nice car without having her parents help. They gave her a loan. Because car loans are much shorter and much less money than a home mortgage, lenders are more willing to work with people who have credit problems.

Feryll
Post 2

@Laotionne - There is a point where no lender is going to want to take a chance and give you a loan. What you have to remember is that the term bad credit is relative. Lenders take each case individually. Even if two people have the same credit score, a lender might choose to give one of them a loan and deny the other one.

When I wanted to buy my first car, my problem wasn't that I had bad credit, but that I didn't have any credit history. Growing up, I was taught not to buy anything on credit and to wait until I could pay the full price for whatever I wanted.

The only way I was able to get my first car was to have my father cosign. Otherwise, I wouldn't have been able to get any type of car loan at any interest rate.

Laotionne
Post 1

The articles talks about how lenders charge higher interest rates to people with bad credit, but isn't it also true that when a person has bad credit they may not be able to get a loan at any interest rate? I have heard people say that they couldn't buy a car or get a mortgage loan because their credit scores were too bad.

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