Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.
How to get car finance with bad credit
Saving up for a down payment and comparing multiple lenders can help.
If you have bad credit, you know that getting a car loan can be a daunting process. But hope isn’t lost — there are lenders that specialize in offering loans to borrowers who may not have the best credit history. Let’s take a look.
How to get a car loan with bad credit
Getting car finance with bad credit is a lot like getting any other type of car loan. However, you might have to work a little harder to find the best deal.
- Save up a deposit. The best way to show a lender you’re serious is to have a deposit saved up. Most experts recommend having at least 10% of the car’s value before you buy, but 20% can help you borrow less — and potentially at a lower rate.
- Apply for preapproval. Dealerships tend to offer high rates — especially when you have bad credit. By applying for preapproval with a lender before you visit the dealership, you’ll have the upper hand when it comes to negotiating your terms.
- Check your credit report. A mistake on your credit report can cost you points on your credit score. You can get a copy of your credit report for free and fix any mistakes by contacting the creditor.
- Compare multiple lenders. Using a connection service that specializes in bad credit financing can help you quickly get an idea of what rates you’re eligible for, but you might not want to just stick to one — many of these are limited to their network of partners.
- Read the fine print. Some bad credit lenders try to sneak around offering a higher rate of interest up-front by tacking on over-priced add-ons in the contract.
- Ask an expert. Worried you won’t qualify? See if you can sign up for a credit counseling session to have an expert guide you through your options.
7 questions to ask about car finance with bad credit
Before you apply for car finance with bad credit, find out as much as you can about the offer you’re getting. Ask yourself these questions before you apply.
- What’s the interest rate? To get an idea of how much your loan is going to cost, look to the rate of interest (or APR) that’s being offered. The interest rate includes both interest and fees and is the easiest way to make a quick comparison of loans with the same terms.
- Is the loan secured or unsecured? If you take out a secured loan, the lender uses your car as collateral. While this means you may have a lower rate, you run the risk of having the car repossessed if you default on the loan.
- What’s my loan term? Loan terms typically run from around one to seven years. A shorter loan term can reduce the amount of interest you pay — but monthly payments will be higher. On the other hand, choosing a longer loan term will reduce your monthly payments, increasing the amount of interest you end up paying.
- How much will I pay each month? You want to find affordable monthly payments. It’s important to choose a loan term that suits your income and is in-line with your financial plans.
- Can I afford extra payments? The flexibility of making extra payments can help you get out of debt much quicker. Check with your lender to see if it allows extra payments.
- What are the fees? Bad credit loans often come with more fees than other types of car loans. Some lenders charge a monthly account fee and/or an administration fee. Many will also charge an initiation fee when issuing your funds; usually between 1% and 5% of the loan amount.
- Can I pay it off early free of charge? Some loans include early repayment fees if the loan is paid in full before the agreed loan term date. If you intend to make extra payments to pay your debt off sooner, check how much you might be charged.
Mistakes to avoid with a bad credit car finance deal
Make sure you know exactly what you’re getting into before you sign up for car finance — or any loan. If you don’t do your research, you could find yourself in a financial nightmare, or worse — in a scam.
- Going over budget. Work out how much money you’ll be paying back over the course of the loan to get an idea of how much you’ll spend on your vehicle — is it worth it, and more importantly can you afford it?
- Not checking reviews. Check review sites, messages boards and car enthusiast websites to see what other people have to say about certain lenders. If you know someones who’s been in a similar position when financing a car purchase, ask them.
- Extremely long loan terms. Some lenders offer loan terms of six and seven years that can accrue major interest over time. Sure, the monthly payments will be lower, but if it’s not absolutely necessary, it should be avoided to save money.
- Being unprepared. Check your credit score before you do any car shopping so the dealer or lender can’t take advantage of you. Also, by knowing interest rates that other lenders offer, you’ll be able to compare and find the most competitive deal.
- Making an impulsive purchase. Of course, your dream car is out there. But if you have poor credit, it may have to wait so you can buy a car you can afford — and has lower rates.
- Falling for a scam. There are some common scams and tactics you should be aware of when you’re shopping for a car loan. Don’t let a predatory lender push you into making the wrong financial move.
Don’t forget to negotiate
If you’ve gotten preapproved for vehicle finance, you’re in a good spot — even if you have bad credit. You won’t have to rely on the dealership to finance you, so you can negotiate the price of your car and any other features without worrying if you can afford the car. Best of all, you may be in a position to get an even better deal. Your sales person might be willing to match the interest rate or terms you have with your current lender.
Your sales person might also try to throw in extra and incentive. Be wary. Many of these, like an extended car warranty, will cost you much more than they’re worth. Negotiate the price of the car and the terms of financing, and only go for extras if you think you’ll really use it.
Alternatives to consider
The best alternative to a car loan is to build your savings. You can also work toward improving your credit score to help get a better interest rate in the future.
If you can’t wait, you could potentially take out a personal loan to buy a car or consider using a credit card. These both come with their own risks, so consider your options carefully before borrowing.
Frequently asked questions
Do I need a co-signer to qualify for car finance with bad credit?
Not necessarily. You may be able to qualify for a car loan without a cosigner if other aspects of your application are strong, such as having a consistent income and large down payment saved up.
Is bad credit car finance actually the right solution for me?
It depends on your credit rating, the type and cost of the car you are looking to buy and your financial situation. Be sure to make through comparisons and don’t neglect other alternatives such as using a credit card to pay for a low-cost car.
How do I choose a lender that is reputable?
Do your research. Get online and see what other people are saying about their experiences with different lenders. Talk to people you know who have applied for bad credit car finance, and read all the terms and conditions.
What fees are involved that might be different from bigger banks?
Monthly account fees and initiation fees can significantly increase the amount you have to pay back. Some loans will also include a fee for early repayment, so make sure you know the ins and outs of your loan.
More guides on Finder
Ethereum (ETH) price prediction 2021
What affects the value of Ethereum (ETH) and how might the price of ETH fluctuate in the year ahead? Find out in this comprehensive guide.
Axie Infinity guide: How to play and earn
Axie Infinity is an RPG game that is currently dominating the NFT sector. Discover what Axies are, what makes them unique and how you can earn money simply by playing.
What is Compound Finance?
We explore how to use Compound Finance for lending and borrowing.
South Africa Reserve Bank repo rate forecast report March 2021
The repo rate is set to hold this March meeting, according to a unanimous vote by 25 panellists.
Finder Cryptocurrency Predictions Report: October 2020
We asked 30 panellists for their cryptocurrency price predictions, the outlook for DeFi and how long they think high returns on yield farming might last.
How to buy and sell Dogecoin (DOGE)
A beginner’s guide to buying and selling this decentralized, peer-to-peer cryptocurrency in South Africa.
How to invest in the Didi Chuxing IPO from South Africa
Everything we know about the Didi Chuxing IPO, plus information on how to buy in.
Binance Futures guide: How to trade BTC, ETH and more
Learn how to trade futures contracts on Binance with this visual step-by-step guide.
How to buy Robinhood stock from South Africa
Robinhood is expected to go public, here’s what you need to know if you’re looking to buy in from South Africa.
How to buy Coinbase (COIN) shares from South Africa
Steps to owning and managing Coinbase shares.
Ask an Expert