How to Buy a Car With Bad Credit — Without Getting Taken

Check your credit report first, get a loan pre-approval from a bank or credit union before you shop, agree on the out-the-door price before you talk about payments, and let the dealer finance you only if they beat your pre-approval in writing. Bad credit raises your rate — it should not raise the price of the car or force add-ons.

Short answer: Check your credit report first, get a loan pre-approval from a bank or credit union before you shop, agree on the out-the-door price before you talk about payments, and let the dealer finance you only if they beat your pre-approval in writing. Bad credit raises your rate — it should not raise the price of the car or force add-ons.

The problem

With bad credit, it is easy to feel lucky just to be approved. That is exactly when buyers sign a high rate, a long term, and extras they never asked for.

Roosevelt's plan

Know where you stand. Pull your free credit reports and dispute any errors before you apply. Know your score range so nobody can tell you it is worse than it is.
Get pre-approved before the dealer. Apply with a bank or credit union first. A pre-approval tells you your rate and budget, and gives you something the dealer has to beat.
Settle price first, payment last. Negotiate the out-the-door price of the car. Only then discuss financing. Keep the term as short as you can afford.
Read every line in the finance office. Warranties, GAP, and protection packages are optional. Approval should not depend on buying them.

What to say

When asked your monthly budget: "I'm not shopping by payment. What's the out-the-door price?"
When financing comes up: "I'm pre-approved at a set rate. If you can beat it in writing, I'll consider it."
When an add-on is called required: "Show me in writing where the lender requires it. Otherwise, take it off."

Questions buyers ask

Can I buy a car with bad credit?

Yes. Expect a higher rate. Getting pre-approved first, putting more money down, or choosing a less expensive car can lower what you pay overall.

Should I let the dealer run my credit?

Only after you've agreed on the price and only if you want them to try to beat your pre-approval. Multiple auto-loan inquiries in a short window are generally treated as one for scoring.

Do I have to buy an extended warranty to get approved?

No. Add-on products are optional. If a dealer says the loan requires one, ask to see it in writing from the lender.