Financing for First-Time Car Buyers With Bad Credit

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Getting into a new car or purchasing one for the first time can be stressful. The team here at Granite Hyundai of Somersworth, NH, understands this entirely, and we're here to discuss the options you have as a driver with potentially bad credit. Of course, "bad" credit means something different to everyone, so we'll offer some insight into this below. Again, financing as a first-time car buyer with bad credit will be challenging, but it is possible with proper planning.

What Is Considered Bad Credit?

Bad credit will be anything between a score of 300 and 579. According to the FICO scale, creditors will look at scores below 580 with a more doubtful repayment percentage from you, so this can make getting a car for the first time a challenge. Any score under 580 will be officially titled "Poor."

How Bad Credit Affects Car Financing

Bad credit can affect your car financing in many ways. First, securing a low-interest financing offer from the dealer or a third-party provider will be less convenient when your score on the FICO scale is lower. A score of 580 is one of the weakest scores most financing offers run on, meaning those with "bad" credit or below will have to work a bit harder to secure financing.

To put this into perspective from a creditor's point of view, having a bad credit score (300-579) makes you more of a risk to loan providers. They don't think you can repay the money in the long or short term.

How Bad Credit Impacts Loan Terms

Bad credit can largely affect the loan terms of your first-time auto purchase, with high interest being the most obvious example. Many drivers will see origination fees, which can be as high as 12% of your loan amount, plus higher APRs. Someone with a credit score of 700 might get under six or seven percent interest, while your car loan could be closer to 15-20 percent with poor credit.

Financing Options for First-Time Car Buyers With Bad Credit

The good news is that buyers wanting to purchase a first-time car can find financing with bad credit. You can try everything from a loan through your long-standing bank to credit union loans, in-house dealership financing (recommended), getting a co-signer, and other high-risk shopper-focused financing opportunities.

Traditional Bank Loans

A traditional bank loan for a first-time car buyer with bad credit can be a safe option, especially if your history with them is positive. For example, if you've been with Wells Fargo for 10 years, never missed a payment, and have a little bit of cash in your savings, they may be inclined to offer you an auto loan at so-so terms.

Credit Union Loans

Credit unions sometimes offer riskier first-time auto financing to people with bad credit, although this can be difficult. You might be required to find a co-signer for credit union loans or pay a premium origination fee, but you could still have great luck doing this versus through banks, etc.

In-House Financing (Buy Here, Pay Here)

In-house auto financing for bad credit buyers is an excellent choice if the dealer you work with has flexible terms and lower-than-average APRs and origination fees. Here at Granite Hyundai of Somersworth, NH, we offer an industry-leading 'Credit Restoration Program,' which essentially approves those with bad credit for financing, even bringing their credit score higher with on-time payments and total repayment for their car, truck, or SUV.

Bonus: Our team is even here to assist with identifying any errors or points of contention on your official credit report that can be disputed with credit reporting agencies.

Subprime Auto Loans

Subprime auto loans for first-time car buyers with bad credit can be an option for you, with most creditors identifying people as "subprime" or "deep subprime" loan requesters. You will need ~500 to get these most often, which is something to be mindful of.

Co-Signer Option

Having another person co-sign your car is a safety net for first-time shoppers with bad credit. We could explain this as a bank seeing you as not having a high probability of repayment, but the person alongside your financing is a safe bet for repayment. For this to work, you want to find a co-signer with decent credit, ideally in the 670 or higher range.

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Preparing for the Financing Process

The best thing you can do to prepare yourself for the auto financing process is to get your credit score in check and dispute any false information or balances present. You also want to try to pay down credit cards before applying for financing and keep up-to-date with debts or loans you owe the most money toward. On-time payments make a HUGE difference to creditors and will show them you can be trusted with repayment.

Check and Improve Your Credit Score

Checking your credit score can help you see which accounts are causing trouble on your report. Credit Karma is one of the most popular ways of checking credit reports from TransUnion and Equifax, and it has a convenient app. Most banks also offer credit score updates, which could be in your Wells Fargo, Chase, Citibank, American Express, or other financial institution's dashboard. You can also check your score through nationwide credit bureaus if you have your social security number.

Calculate Your Budget

Putting together a budget for a car purchase is the best first step to financing. See what makes sense for your monthly income, and try to get yourself in a position where your payment won't take away funds from rent, your mortgage, food, gas, or whatever else is deemed essential.

Save for a Down Payment

Although not required, a down payment is a great idea for people financing a car for the first time, especially those with bad or poor credit. The industry standard is about a ten percent down payment on a financing offer, but this doesn't always have to be the case. Whatever you have for a down payment helps!

Gather Necessary Documents

Before heading to the dealership to purchase or finance a vehicle, you want to ensure you have the documents that a creditor or finance agent will need to prove your identity and financial status. This could be a light bill, social security card, passport, paystubs for the past few months, or a W2 from your employer. The more documentation you have on you, the easier the car financing process will be.

Do First-Time Car Buyers With Bad Credit Need a Cosigner?

No. First-time car buyers with bad credit do not need a cosigner to qualify for financing. That said, having someone with a near or above 700 credit score beside you on a loan will help with APR and terms. The lower your credit, the more you need a cosigner on your automotive loan.