Bad Credit Can Wreck Your New Car Plans

New Car Lending

If you’re planning to shop for a new car, most likely you’ll be relying upon your bank or the financing arm of your automaker to supply the funds as an auto loan or car leasing deal. In either case you’ll need to have good credit to get a loan or you will be faced with the choice of having to pay a higher interest rate or do without a new car. Let’s take a look at some ways you can ensure that your next set of wheels is a reality and not some bad dream.



Check your credit — Anytime you take a out a loan or seek to lease a car, your credit information will be obtained by your bank or car dealer. They’ll see your credit score and it is that three digit number which determines your creditworthiness. Consider obtaining your credit score from before making your purchase to know where you stand. Scores of 700 and above demonstrate “good credit management” according to Experian, one of three credit reporting bureaus.

Fix your credit — If your score is below 700, obtain all three copies of your credit reports. Experian, Equifax and TransUnion are the three credit reporting bureaus, each of which must offer to you one free copy of your credit reports annually. The only website where you can obtain all three copies is at Examine each report carefully. If errors are present, then follow each bureau’s procedures for making corrections. About 30 days after you challenge mistakes, those errors should be removed from your reports. Your credit score should increase to reflect the change.

Bad credit car loans — Even if your credit score remains low, you may still be eligible for a bad credit auto loan. How that works depends on the car manufacturer who may be happy to take you on as a subprime borrower, someone whose credit score is 620 or lower. Your bank may be interested in helping you out too, but be prepared for some unfavorable terms including making a larger down payment on your car, accepting a higher interest rate and perhaps agreeing to a shorter loan term, such as 36 months.

Your other options — No credible financial adviser is going to suggest that you borrow money from your home to pay for your car, but that is something you can do if you have a home equity line of credit. Your retirement account including your 401(k) are some other options you could pursue, but keep in mind that these choices can have other ramifications including putting your home at risk if you default or become a tax nightmare if you tap your retirement ahead of time.

Shop or Drop

As always, shop around for the best loan deal you can find. A lower credit score may not be a show stopper, especially as dealers vie for your business. Be prepared to offer a sizable down payment or a paid off trade of significant value to help bolster your case as a borrower and new car buyer. If all else fails, shop for a late model used car at least with these models the worst drop in depreciation is behind you.

Resources Home

Federal Trade Commission; Credit Repair: How to Help Yourself; Oct. 2008

Consumer Action Website: Cars Leasing a Vehicle

See AlsoHow To Obtain a Bad Credit Car Loan

Author: Matthew Keegan
Matt Keegan has maintained his love for cars ever since his father taught him kicking tires can be one way to uncover a problem with a vehicle’s suspension system. He since moved on to learn a few things about coefficient of drag, G-forces, toe-heel shifting, and how to work the crazy infotainment system in some random weekly driver. Matt is a member of the Washington Automotive Press Association and is a contributor to various print and online media sources.

1 thought on “Bad Credit Can Wreck Your New Car Plans

Leave a Reply