Dealer's Journal Car Buying How to Buy a Car with Poor Credit

How to Buy a Car with Poor Credit

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Buying a car with poor credit can be difficult, but it’s not impossible. There are a few ways to overcome the obstacle of poor credit. The first and most obvious is to save money so you can buy an inexpensive car outright. But this isn’t always possible, so the next two options are to look for loans for poor credit or use a Buy Here Pay Here (BHPH) program.

Getting a Car Loan With Poor Credit

In a nutshell, car loans for poor credit are out there, but they often come with high interest rates and other fees. If possible, it’s better to take time to build your credit and/or down payment to increase your chances of approval and reduce the high costs associated with this type of loan.

Financing terms for cars are already expensive, but they can be more expensive if you have a low credit score. For example, subprime scores between 501 and 600 got an average interest rate of 11.53% for a new vehicle in 2023. The rate was 18.55% for used vehicles. To compare, the average interest rate for a 60-month loan on a new car was 7.48% in the same period.

Before you start shopping for car loans, check your credit and find out your score. You should also scour your credit report for any inaccurate information and dispute it. Checking your report helps temper your expectations when shopping for a loan.

Buy Here Pay Here Options

Buy here pay here programs are essentially loans for customers with poor credit. They’re offered by car dealerships that provide financing in-house, which means that the dealer is both financing and selling the car. Sometimes, this type of loan is advertised as a no-credit check loan.

If you have poor credit, there are some scenarios where a BHPH loan makes sense. However, it’s important to remember that there are often higher costs involved. A dealership that offers a buy here pay here loan will usually ask for your proof of residence and verification of income, but they won’t usually check your credit.

Just like with a regular loan for poor credit, you’ll generally need a down payment. Cars in the BHPH program are usually older vehicles with higher mileage. The average cost for this type of vehicle was around $7,000 in 2018.

How To Decide

When you have poor credit, it’s always a good idea to shop around and compare costs. If you can qualify for a traditional car loan, then it’s generally better to choose that method. If your credit is on the higher end of the subprime range and you have a good down payment, this isn’t impossible.

However, if you’ve exhausted all other options and you really need a car, a buy here pay here program is a lifesaving solution. It’s important to be aware that you’ll likely end up paying more for the vehicle than it’s worth, but if the terms work with your income, then it’s a fair choice.


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