What to Expect if You Have Bad Credit When Applying for a Car Loan?

August 25th, 2016 by
Bad Credit Car Loan

Having bad credit doesn’t automatically rule you out from being able to finance a used car, but it does affect the terms of the financing.


People who have challenged or bad credit – and don’t worry, there are millions of people out there facing the same situation – often wonder what they can expect if they decide they want to purchase a used car and finance it with a used car loan. Having bad credit doesn’t automatically rule you out from being able to finance a used car, but it does affect the terms of the financing.

Some used car dealerships won’t even try to help you figure out the financing, in which case you should just move on until you find one that will help you. Many used car dealerships simply haven’t invested the considerable time and resources it takes to develop relationships with leading lenders. But there are plenty of dealerships who have made that investment because they know it offers customers a major benefit – the advantage of being able to get their car and the financing all lined up in the same place at the same time.

People with challenged credit can still buy decent used cars, but the more challenged your credit, the harder it will be to get a loan, and the higher the interest rate you’re going to have to live with to make your purchase. People with good credit are rewarded with lower interest rates while people with challenged credit are penalized with higher interest rates. It may not seem fair, but it’s just the way the system works. From the lender’s perspective, making a loan to someone with challenged credit carries a higher risk of default, so they charge you more for taking on that higher risk.

And yes, there are some bad credit situations that no lender will work with. What you want to do is find out what’s possible for your specific situation. A good used car dealership will sit down with you and go over your situation and then give you a realistic picture of what’s possible. If the dealership has a robust network of lenders, the chances are good that one or more of them will have a program tailored to meet your specific situation.

Another thing that’s fairly common is that if you have challenged credit, lenders may require you to put more money into a down payment, which is another way of reducing their risk exposure. This can also be a good thing for the challenged credit customer. With a bigger down payment, you might end up with a lower monthly payment. In fact, if you don’t have to buy a car immediately, take some extra time to save up a bigger down payment as it will help increase your chances of qualifying for a loan and maybe get you better terms as well.

There’s more that goes into a lender’s decision to make a loan to you than just your credit score. They consider your employment history (stable long-term employment is always better), your income (to make sure you can afford the payment), and a variety of other factors. You might also be asked to provide documentation for these things. Depending on your situation, the lender might require a co-signer to further reduce the risk involved for them.

At Auto City we take the time to understand your unique situation, and then we give you a realistic picture of what’s possible in terms of used cars you can afford as well as financing. We think that’s just good business practice. To learn more about how we can help, please visit our challenged credit page.