Your credit score is one of the most important components of your financial life. If you want to get a loan, buy a house, or even rent an apartment, your credit score will come into play. When it comes to buying a car with bad credit, there are some issues that you need to be aware of before making any decisions.

Different factors that go into deciding are how much your monthly payments will be and what type of interest rate they’ll charge you. The first thing is your income level which determines the amount of money you can spend on a monthly payment and the type of loan that best suits your needs.

The second thing is whether or not you’re buying new or used because there are different types of loans available for each category.

Finally, if this is an emergency purchase because your vehicle has broken down or been totaled, then a sub-prime lender may be able to help with financing in spite of a poor credit score.

In this blog post, we’re going to explore what’s important when purchasing a vehicle if you have poor credit!

Does having bad credit mean you have no credit for a car?

No, it doesn’t. This myth comes from the fact that you need to have a good credit score in order to get a good interest rate on your loan and sub-prime lenders are notorious for charging high rates. Because of this perceived reality, some people with less than perfect credit think they can’t buy a car at all.

But this isn’t true. While it’s true that you’ll get a much better interest rate on your loan with a good credit score, it doesn’t mean that you can’t find a great deal on a car. It may mean you have to get pre-approved at your bank and then take that offer to the dealership so they can hold it for you until you get there. Then once you are pre-approved, go in and do some comparison shopping. The goal in doing this is to find a car for as close to the pre-approved offer as possible so you don’t have to pay back the bank more than you have to.

Factors That Influence Your Credit Score

It comes as a surprise to many people that your credit score is affected by different factors. Some of these factors are outside your control and others exist within it. Here are a few of the things that can impact it:

1) The type of loan you choose

For example, if you buy a car and finance it with a simple interest loan, then that will increase your number of accounts open. As each account builds history, you’ll probably get a higher score. On the other hand, if you finance it with an interest-only loan and then switch to a traditional loan after three months, that may lower your score because now you have two separate accounts open.

2) The lender

If for example you buy your car and finance it through Ford Motor Company, your FICO score will not be affected. However; if you finance it through a bank, then the lender will send information to the credit reporting agency which is how they’ll get their data on your loan.

3) Type of car purchase

According to the Experian Automotive Report, “The biggest correlation between an individual’s FICO scores and type of vehicle that he or she buys is among those who own luxury cars.” A luxurious car such as a BMW may decrease your score because you’re paying higher insurance rates than you would for say, a Honda Accord. It isn’t just the cost of repairs or maintenance that causes this change in FICO scores either, but also the way people with high end vehicles pay off their bills. Plus cars that aren’t practical don’t qualify as assets when you’re looking to buy a house.

4) New vs. used car

When you purchase a new vehicle, your FICO score will go up because you’ve established the type of payment history the lender wants to see and opened more accounts. The same goes for leasing a vehicle. It’s too soon to know how the new type of vehicle will affect credit scores, but your TransRisk score can help you with that. In the past, leasing has always given you a higher score but now with some lease contracts being for as long as 84 months (this means up to 8 years!), it’s hard to accurately predict what effect this longer-term will have. More time spent leasing a vehicle can indicate that you’re shopping for the right car and are trying harder to get re-established.

What if my credit scores improve over time?

If you purchase a car when your credit is poor or limited and it improves over time, then you could be a good candidate for refinancing. These companies will provide you with an option to refinance your car loan at a lower rate than what you’re paying now. In this case, the opposite of what we discussed before may happen. Your credit score will go up so they’ll give you a better interest rate (which is beneficial to everyone involved). Refinancing isn’t necessarily for everyone though.


Understanding how credit scores work and the impacts that buying a car will have on it will help you maintain your credit score. Understanding these rating systems can put you in a better position to do the best that you can when buying a car. Plus, understanding your credit score will help you know what type of options are available to you when buying a vehicle on a budget and with bad credit.

Don’t let poor or limited credit stand between you and getting into your dream car. When you’re trying to buy a vehicle, make sure that you run the numbers first so that you can get into the car that works for you in a way that works for your budget.

So, Is buying a car with bad credit worth it?

Yes! It’s well worth the wait. Now that you know how important your credit score is, you can work towards making it better. You’ll have options once your scores improve and in the meantime, there are many good cars out there for those with less than perfect credit.
You will be proud to always have a car payment (with no interest), although having a lower interest rate (with no payments) would be even better!

Don’t get frustrated over bad credit because now you know what questions to ask before buying a vehicle, and what to do to make things right if your credit isn’t as good as you’d like it to be.

Most of all, try not to feel discouraged. There’s plenty of help out there that can get you back on your feet if your credit is bad. You just have to be willing to look for it and ask for help if you need it.

Good luck!