Believe it or not, you may be able to buy a new car with bad credit. This might not apply to everyone in every credit situation, but an affordable new vehicle is an option for many people. However, if you're struggling with less than perfect credit, getting this new car can take a few more steps, along with the right lender. Let's take a look at what you need to do, as well as some pros and cons of buying a new car.
Bad Credit Auto Loans Are Different
Getting a bad credit auto loan is similar to getting an auto loan with good credit, but the process is reversed. When you have less than perfect credit, you have to find a lender to work with before you can pick out a car.
As a bad credit borrower, you typically have to visit a special finance dealership that works with subprime lenders, provide documentation, and then, if you're approved, you can choose a vehicle within your payment range from the dealer’s inventory.
It's nearly the opposite for borrowers with good credit. They often choose their car, get financed, sign their paperwork, and take delivery of the vehicle.
So, how does this process relate to buying a new car? It comes down to a part of the bad credit lending process called the payment call. In this process, the dealer receives an approval from the lender that tells them the maximum monthly payment you qualify for.
The dealer can then provide you with a selection of vehicles that fits these guidelines. Depending on the dealership and what you qualify for, you can look at both new and used cars.
Pros and Cons of Buying a New Car
Buying a new car with bad credit, as opposed to a used car, comes with some pros and cons. There are a lot of advantages to getting a new vehicle if you're able to qualify:
- Latest makes and models
- Newest safety and technology features
- Manufacturer-backed warranty
- May have a lower interest rate than used cars (though still higher than with good credit)
However, the advantages of buying a new vehicle can sometimes be outweighed by the drawbacks, as well as some bad credit stipulations:
- New cars are more expensive than used
- May need a larger down payment
- May have less of a selection to choose from
- May require a longer loan term, which leads to higher interest charges
Qualifying for a Bad Credit Car Loan
Whether you're buying new or used, you have to qualify for a bad credit auto loan with a subprime lender. These lenders consider many factors to help get you approved for financing, and don't solely rely on your credit score. In order to be approved, you need to meet all lender requirements.
These requirements vary by lender, but most use the same basic guidelines:
- A valid driver's license – This serves as proof of your identity, and that you can legally drive the vehicle you're buying.
- Proof of income – Most lenders require you to make a minimum of $1,500 to $2,500 dollars a month before taxes from a single job. This has to be proven with a recent computer-generated paycheck stub that shows your year-to-date earnings.
- Proof of residence – Bring in a current utility bill or bank statement in your name showing the address listed on your application.
- Proof of a working phone – Lenders need to be able to contact you and require you to have a working landline or contract cell phone in your name. Prepaid phones don't count.
- Personal references – Subprime lenders generally require a list of five to eight complete personal references with names, addresses, phone numbers, and email. These can be family, friends, or coworkers, but you can't use someone that lives at your address.
- A down payment – Most lenders require a minimum of $1,000 down or at least 10% of the car's selling price, whichever is less.
Even if you meet all the lender’s requirements, you might have an easier time qualifying for a new vehicle if you have a little backup, and lower the lender’s risk. You can do this with either a cosigner or a co-borrower. Both can help you qualify for a loan, and possibly that new car you're looking for.
Visit the Right Kind of Dealer
You won't be able to buy a new car with bad credit if you don't visit the right kind of dealership – one that has the subprime lenders you need to work with if you have credit challenges. Finding these dealers can seem like looking for a needle in a haystack if you don't know where to go. Luckily, with Auto Credit Express on your side, we can help take the hassle out of the hunt.
We're teamed up with a nationwide network of special finance dealerships that have the lenders you need to work with. To get matched with one in your area, simply fill out our fast and free auto loan request form!