If you have bad credit, it can be difficult to qualify for an auto loan on a new vehicle. It's not impossible, though, and there are even some benefits to buying a new car in the long run. But, if you have your sights set on a brand new set of wheels, there are a few things you should keep in mind.
Are There Benefits to Brand New Cars?
Getting a new car can be exciting! They typically come with all the bells and whistles: latest colors, styles, trim levels, infotainment systems, and technology. Brand-new vehicles may also come equipped with more standard options than their used predecessors did – in comfort, convenience, and safety.
There are benefits to buying a new car if you can afford it, even with bad credit. Mostly the benefit comes in the form of standard safety features, and overall vehicle performance. In many cases, new cars have less risk of major damage from wear and tear and may go a long time without costly repairs.
But all these benefits come at a price. And to know what that is you typically need to look at the total cost of ownership. The average length of a new car loan is typically around five years (60 months). To know what the total cost of ownership is, automotive research company Kelley Blue Book conducts research to help borrowers know what the total costs they're looking at over a five-year period including depreciation expenses, cost of fuel, maintenance, repairs, insurance, financing, and state fees.
Currently, the vehicles in the U.S. with the lowest total cost of ownership over five years, according to KBB.com, are:
- 2023 Chevrolet Bolt SUV, Electric Vehicle – $28,610
- 2023 Toyota Corolla Hybrid, Hybrid Car – $30,207
- 2023 Subaru Impreza, Compact Car – $31,041
- 2023 Hyundai Venue, Subcompact SUV – $31,686
Many times, those prices can be tough to swallow if you're a borrower with bad credit. Not only is it harder to get approved for financing with a lower credit score, but it can also be more difficult to find a lender willing to give you a large loan. With the prices of vehicles these days, it may take a little legwork, and a large down payment to get into the new car you want with bad credit.
New Cars and Poor Credit
The average price of a brand-new vehicle rose to $48,759 in December of 2023, and it's the second-largest expense for most Americans behind a home. Since many shoppers can't typically shell out that much cash at once, most people turn to auto financing.
If you have good credit you're more likely to qualify for preapproval from a direct lender such as a bank or credit union. You may also have an easier time getting a loan with a captive lender through an automaker.
With a lower credit score, it can still be a good idea to try for preapproval, and this may be less difficult if you're a member of a credit union. They tend to offer lower interest rates and special deals to their members. If you don't belong to a credit union or aren't able to qualify for preapproval due to your credit score, you're not out of luck.
If you don't qualify for preapproval, and can't afford to buy a car with cash, bad credit borrowers are left to finance through a subprime lender or with an in-house financier. And, this makes it harder to finance a new car. In fact, in-house financing only deals with used vehicles.
Finding a Middle Ground Between New and Used
When you need to get a bad credit auto loan, there's still a chance that you can get a new car, but there's a better chance of qualifying for a gently-used car, instead of a brand new car. A good compromise can be a certified pre-owned (CPO) vehicle. CPO cars are typically only a few years old, have likely only had one owner, or may have just come off lease.
These vehicles can offer you the peace of mind of a new car, including a manufacturer-backed warranty, but without the high price tag found on brand-new vehicles. They also tend to have fewer miles and more new safety and technology features than a used car that's sold as-is.
Vehicles that are sold as-is typically go straight from the previous owner to a dealer's lot with little more done than a spit and shine to make it ready for sale. A CPO car, on the other hand, is given a rigorous multi-point inspection and refurbished by a manufacturer-certified technician.
The good news is that a CPO can be easier to qualify for with a poor credit score than a brand-new car, even if you're working with a subprime lender.
Getting a Car Loan With Bad Credit
To give yourself the most car loan opportunities, it's a good idea to stick with financing through a subprime lender that's ready to work with bad credit borrowers. Not all lenders can finance a bad credit auto loan, but we know where to find the ones that can.
At Auto Credit Express, we've cultivated a coast-to-coast network of special finance dealerships that are signed up with the lenders you're looking for. With our assistance, you can be on the path to your next auto loan without the hassle of searching for a lender on your own. There's never any obligation to buy, and our auto loan request form is fast and free to fill out. Stop waiting to get the bad credit car loan you need – get started right now!