Before applying for a car loan it can help some consumers if they first establish some type of credit history by applying for either a secured credit card or a traditional credit card
How to establish credit
Before or even after receiving an auto loan approval there are additional steps that can be taken by consumers with problem credit to further their credit repair efforts by improving their FICO scores.
We know this to be the case here at Auto Credit Express because we've spent more than twenty years helping car buyers with poor credit find those new car dealers that can give them their best opportunities for auto loan approvals.
But in order to answer the question "can you get a car on finance with bad credit?" we first have to look at the two types of credit consumers can apply for – installment credit and revolving credit.
Installment credit requires the borrower to sign contract that calls for paying a fixed amount usually per month over a fixed loan term (i.e. $300 per month for 48 months). A typical example of an installment credit contract is an auto loan.
Revolving credit also involves signing a contract but the borrowing limits on these accounts are typically lower than those of an installment credit contract and there is no "fixed" monthly payment. If the account balance isn't paid by the due date, lenders allow borrowers to make a minimum payment based on the total amount owed while carrying over (revolving) any remaining balance.
A credit card is the most common example of revolving credit while there are two basic types of revolving credit cards.
Secured credit cards
A secured credit card is the easiest type to qualify for - even for consumers with little or no credit. The first step is to set up a savings account with the lender. Then, once you receive your credit card the credit limit is based on the balance in that account.
One advantage to a secured credit card is that it eliminates the need to carry around cash. When items are purchased, funds are withdrawn from the savings account to cover those purchases. Unlike a traditional debit card, the Visa or MasterCard logo means a secured credit card can be used at businesses that accept these cards.
The biggest advantage, however, is that unlike a debit card, secured credit card issuers report monthly payments to the credit bureaus - helping their account holders to establish revolving credit.
Since a number of companies offer these cards, consumers should shop around and pick the one the best interest rate and fee structure. Secured credit cards sometimes come with set-up, program and monthly servicing fees on top of an annual fee, so add these into the equation to be sure you get the lowest total fee amount.
More importantly, check for a provider that will convert a secured card to an unsecured card once you've established a history of timely payments.
Traditional credit cards
A traditional (unsecured) credit card requires no savings account. This being the case, it's more difficult to qualify for one of these than it is for a secured credit card. As with the secured card, shop around to get the best deal on interest rates, set-up, monthly and yearly service fees.
Credit score impact
Most consumers should notice a slight drop in their FICO scores after applying for either type of card, so limit the number you apply for. To maximize your credit scores, either pay off balances each month or keep them below 30% of the credit limit. While on-time payments boost credit scores, balances over 30% tend to drop them slightly while raising flags at the credit bureaus.
The Bottom Line
To get a car on finance with bad credit, you may first have to establish your credit by signing up for either a secured or a traditional credit card. Making timely monthly payments while keeping the account balance under control will enable you to establish a history of revolving credit.
A subprime auto loan, on the other hand, can help you establish an installment auto credit history. With timely payments on both, you raise your credit scores and repair your credit.
Just one more thing: if you have poor credit or if you've been turned down for a car loan by a traditional lender, we want you to know that Auto Credit Express specializes in helping applicants with bruised credit find those dealers that can give them their best chances for approved auto loans.
So if you're ready to reestablish your car credit, you can begin now by filling out our online auto loans application.