Not everybody has good credit. This should not be news. But what may be news to people with less than stellar credit is that they don't have to settle for abuse when financing a car with bad credit. They just have to be aware of the different set of circumstances that is likely to apply to their situation.
If you're going to finance a car, even if you have good credit, it is often wiser to get a car loan from a bank. That can give you cash in hand when you walk into the dealer, which often can get a better deal on the vehicle (the dealer does not want to let a cash buyer walk away).
Unfortunately, if you have bad credit some banks will not lend you money for a car. Credit markets are tight these days after the subprime blowup, and banks are getting a bit pickier. That means you might be forced to finance through a dealer. This is where the potential for abuse comes in.
Some dealers will jack up the price of a car for borrowers with bad credit. This is often the case with dealers who say they specialize in helping bad credit borrowers. They might also add on extra "features" to your purchase price, like credit insurance. Their tactics are not necessarily a scam, but ignorance of what they're doing can cost you.
The best defense is knowledge. Here are some things to keep in mind if you finance through a dealer:
Often dealers use what is called a "captive" financing company (meaning it is owned and run by the auto manufacturer), and they need your business. You are not really in complete control, but you do not have to feel like you're begging either.
Research the price of the car before you buy. Do not settle for a 50-100% sticker markup because you think that is what you have to stomach due to your bad credit. Find the real price, then add $200-600 for dealer profit.
Be prepared to offer a solid down payment. If you can't put any money down at all, you will find yourself abused by financing companies, including dealers. If you can offer a larger down payment, you'll be a more attractive prospect...but don't forget that advice about not paying too much.
Consider dealer networks. These are what they sound like-networks of dealers. They compete for business, much like the members of a financial network like LendingTree do. If you have bad credit, submitting your information online to a dealer network might produce several dealer options for you.
In a nutshell, financing with bad credit does not have to be fraught with danger. You do not have to settle for abuse just because your credit is not perfect. But you do have to be smart to keep yourself from being raked over the coals.
