Bad Credit Auto Loans Advice

Bad Credit Auto Loans Advice


You have seen the ads: if you have bad credit, we can provide a car loan for you! Unfortunately, if you take them up on their offer you could end up paying a very higher interest rate for your loan, costing you a mint in financing charges.

Before you trade in your old gas guzzler, make sure that your credit is in good shape.

Experian, one of the three credit reporting bureaus, says that a person whose credit score is above 700 “usually suggests good credit management.” They also say that most scores fall between 600 and 750 which means that if your score is below 600 then you pose a greater lending risk. (see What is a Good Credit Score?)

But bad credit does not mean you cannot get a new or used car. What it does say is that if you are patient and work first on improving your financial picture, then you can get an affordable loan to cover the cost of your new ride.

Let’s take a look at some steps you might want to take in a bid to improve your credit score:

Pull your credit reports. Did you know that you are entitled to one free copy annually of your credit reports? is a site managed by the three credit reporting bureaus—Trans Union, Experian, and Equifax—where you can obtain copies of your reports.

All three reports contain important consumer information about you including your credit accounts, loan balances, payment history, job and personal information, and other details.

Review your credit reports. Examine your credit reports closely to make sure that the information contained in each is accurate and up to date. Wrong or outdated information can pull down your credit score, perhaps enough to affect what lenders will charge you for your car loan.

Nolo advises consumers to “complete the form the credit bureau provided to dispute entries in your report. List each incorrect or out-of-date item and explain exactly what is wrong.” After thirty days, that information must be removed from your credit reports if in error. (see How to Clean Up Your Credit Report)

Obtain your credit score. Through, you can obtain your credit score too. Unlike your credit report, you will need to pay a fee for this service.

Trans Union and Equifax offer credit scores through this service (Experian requires you to obtain it through their website), so choose just one company and pay that fee. This information will serve as a baseline score going forward, a number you will want to improve as you fix your credit.

Analyze your debt. In addition to reviewing your credit reports for mistakes or outdated information, these reports can give you a good indication of what is holding down your credit score.

You cannot do anything about negative, but correct bad credit information such as defaulting on a loan or filing for bankruptcy. Those events will show up on your credit reports for at least seven years. But if you have made late payments to your creditors, landlord, or utility companies then work toward making your payments on time while also paying more than the minimum balance on your credit cards each month.

Give it time. Certainly, if you want or need a new car right now there is not much to stop you from applying for a loan. But consider this: if you are considered to be a sub-prime borrower, then you could pay two or three times the going rate for your car loan. Better for you if you were to delay your purchase until your score improves.

Work actively to pay down your debt, resist taking out new credit, pay your bills on time and within six to twelve months you can pull your credit reports and obtain your credit score again. By then, your score may have improved enough to where you can get a car loan at a favorable rate.


  • When it comes time to get a car loan, shop around. Credit unions generally offer a lower rate than commercial banks.
  • Put more money down. If you have bad credit, then make a larger down payment. If you assume a greater portion of the risk, then lenders may adjust their terms accordingly.
  • The look, feel, and smell of a new car is enticing. However, your car can lose as much as one-third of its value within the first year of ownership. You may do better finding a late model used car whose price reflects its depreciation.

Adv. – If you’re planning to buy a new car, then you’ll want to get price quotes or find a dealer to arrange for a test drive. You may also want to arrange for your own auto financing which can save you hundreds of dollars on your next car loan.


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About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Matt's Musings", his personal blog. Matt covers campus, consumer, business and financial topics on various websites and blogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".