This post is sponsored by Lexington Law.  


Buying a car with a bad credit score is not impossible. However there are certainly some things you’ll want to consider if your credit is not in an optimal place before applying for a loan.

According to Lexington Law, bad credit is defined as:

Generally speaking, any credit score below 580 is considered poor credit. However, when it comes to loans, many lenders consider anything under 650 to be bad credit. Even if your score is over 580, you may still have trouble getting approved for the loan you need. Remember that there is no solid rule for how high your credit has to be to get approved for a loan and that this depends on the lender’s criteria.

If you fall into this category, you’re not alone. Around a third of Americans have credit scores below 601, and many have no credit at all. If you’re in this spot, you do still have options when it comes to buying a car with bad credit.

Before you even think about applying for financing, make sure you check your credit score and report at annualcreditreport.com. I also suggest a free consultation with the credit repair professionals at Lexington Law.

Steps To Take Before Buying a Car

Whether you have excellent credit or poor credit, there are a list of things you should always do before making a big purchase, like a car. They include:

  • Knowing your budget and financing options
  • Check your credit
  • Compare models and prices
  • Research the dealership
  • Be prepared to negotiate
  • Test drive, check the vehicle’s history, and know your rights

You can read the full guide here.

Potential Options To Consider If You Have Bad Credit

Even with bad credit, you do still have some options when it comes to purchasing or financing a vehicle. 

1. Buy it in cash.

Your credit won’t matter if you pay for your car in cash and in full. If you have the ability to do so, this might be an option worth considering. 

How To Buy a Car With Bad Credit

2. Start repairing your credit.

If you have some time before you need to buy a car, your best option is most likely to begin repairing your credit. Even a small increase in your credit score has the potential to save you thousands across the life of the loan. 

Don’t start applying for loans until you’re sure you’ll be approved. Applying for a loan puts a hard inquiry on your credit report which can decrease your credit score. A single credit check might not make a big difference, but multiple hard inquiries will. Hard inquiries make up 10% of your credit score so if you’re trying to purchase a car with bad credit, it’s best to avoid unnecessary dings.

I created an entire guide on how to start improving your credit score in the next six months — you can read that here. However if you’ve found yourself in a place with errors, inaccuracies, and unfair negative items on your credit report, I suggest contacting the credit repair professionals at Lexington Law for a consultation. They will be able to review your unique situation and help you improve your credit going forward.

3. Accept a higher interest rate.

As a general rule of thumb, the lower your credit score, the higher your interest rate will be. With a higher interest loan, your monthly payments will be higher and you’ll most likely also have longer loan terms. 

It’s really not an ideal situation, however, if you do have the income and the ability to make the payments without falling behind, it might be worthwhile for you to consider this option. But if you truly can’t afford it, it’s likely best to not accept a higher interest loan. 

4. Choose a lower cost car.

Instead of opting for a new car, shop used. You might be able to get a much better price if you look for a well-maintained car with some miles on it.

Make sure to ask for the car’s repair and accident history. Also consider having it inspected by a third-party. Buying used without a warranty can leave you up a creek in the future and cost you dearly for out of pocket repairs. 

Weigh the pros and cons before signing on any dotted line. Consider what you want your financial situation to be 5-10 years from now. Don’t put yourself in a situation that will only make it more difficult for you to pay your bills and provide for yourself and your family. 

How To Buy a Car With Bad Credit

5. Consider a co-signer.

Asking someone to co-sign a loan for you is a big ask. It puts them on the line if you don’t or are unable to make the payments. However, if you’re married or have a parent willing to help, it could help you get a better rate. 

6. Lower your debt as much as possible.

Before applying for a car loan, reduce your debt as much as possible to reduce your credit utilization ratio. You should always aim to keep your used credit below 30% of your available credit, but optimally closer to 10%. If your utilization ratio is above 30%, pay off as much of that overage as possible to bring that percentage down.

Here are some additional tips and tricks to reduce your credit utilization. Tips #3 and #5 are serious game-changers!


How To Purchase a Car Responsibly To Improve Your Credit

So now you know your options and you’ve made a decision. You’re ready to purchase a car, even with bad credit. Here’s how can you use this big purchase to improve your financial situation:

1. Make your loan payments on time.

Payment history makes up 35% of your credit score. Just by making your loan payments on time, you’re putting yourself in a better position for the future.

Put your loan payments on auto-pay so you never forget to make a payment!

2. Avoid opening new lines of credit for awhile.

Applying for an auto loan puts a hard inquiry on your credit report. And if you’re already having a hard time financing a car, it will be more challenging to get approved for other lines of credit. Avoid more dings to your score by not applying for any new lines of credit in the next six to 12 months.

3. Put some money down.

Some dealerships might advertise ‘no money down’ when it comes to purchasing a new car. This could lead to a higher interest rate plus longer loan terms, which ultimately benefit the dealership and the lender. Dealerships earn commissions on loans that they originate, so really they’re just making more money off of you. 

Shop smart and put down a down payment. Whether it’s five percent, ten percent, or more, the more you can put down the less you’ll have to finance. And the less you’ll have to finance, the less you’ll have to pay interest on. 


As you can see, even with bad credit, you still have some options when it comes to buying a car. Don’t be discouraged by the numbers you see. Instead, take action and educate yourself on what you need to do to improve your financial situation. Don’t sign anything you don’t understand and take every step possible to get your credit score up before applying!