Everything You Need to Know About Bad Credit Score Car Loans

January 20th, 2023 by

Car loan paperwork is shown next to a car key.

When you’re ready to buy a car, one of the first questions you’ll be asked is, “what’s your credit score?” Perhaps you know that yours isn’t exactly good. Maybe you’ve never even checked your credit score before this very moment––and when you do, the news isn’t great. Don’t let your credit score stop you from looking for a car, and don’t be discouraged.

If you’re looking for bad credit financing near West Columbia, SC, Mazda of Columbia is happy to work with buyers with all sorts of credit scores. Our knowledgeable and friendly finance team loves educating bad credit car shoppers on how to empower themselves with more options and show you that having a low credit score doesn’t mean you can’t buy a great car. Of course, you might have some questions about shopping for a car with bad credit. We’re happy to answer those, so you can be fully informed before you even begin your search. Here are some frequently asked questions about shopping for a car with bad credit.

Can I Buy a Car With Bad Credit?

Absolutely. This is the first thing we tell all West Columbia shoppers with bad credit. You can get a car loan, even with bad credit. There are many credit institutions and dealerships––like us––that specialize in helping bad credit shoppers explore their options and even improve their options through some strategic steps. We help shoppers with bad credit buy cars on payment plans that work for them every day.

What Is a Bad Credit Score?

You’re probably wondering what car lenders view as a “bad credit score.” There is no set number that all lenders follow, but you will usually see credit scores broken into five tiers. For instance, you might see:

  • Super Prime: 781 and above
  • Prime: 661 to 780
  • Non-Prime: 601 to 660
  • Subprime: 501 to 600
  • Deep Subprime: 500 and below

Regardless of the exact numbers the lender uses, if you fall into the Non-Prime tier, that’s considered “poor credit.” If your score is Subprime or Deep Subprime, you’re considered to have “bad credit.” However, not all bad credit is the same and small improvements in your credit score can dramatically improve your car loan offers.

A salesman is talking to a couple about bad credit financing near West Columbia SC.

What Causes Bad Credit?

If you have bad credit, that doesn’t mean anything about your character or your behavior. There is no reason to feel shame around bad credit––many Americans have it, and for many different reasons. Some people have bad credit simply because they have very little credit history. If you’re young or, for some other reason, haven’t opened many (or any) credit accounts, you’ll have low credit. Sometimes, bad credit comes from little credit activity, not bad credit behavior.

In other instances, bad credit happens because you’ve had to default on payments in the past. That could have been for a variety of reasons and can happen to anyone. It does put a ding on your credit score, but it’s not necessarily indicative of your future borrowing or repayment habits. Sometimes you can have a bad credit score if you carry a high debt-to-credit ratio, even if you always make payments on time. A high debt-to-credit ratio means you use most (or all) of your borrowing limit each month.

Why Does Credit Matter for a Car Loan?

Your credit score impacts your experience getting a car loan because lenders use it to decide your rate. Remember, you’re essentially buying money when you get a car loan. The cost of the money is the interest rate. For those with high credit, the cost of money is lower than it is for those with bad credit. This is because lenders use your credit score as a way to predict the likelihood that you will make payments on time and not default on your loan.

When you have a great credit score, you’ve demonstrated the ability to make payments for other loans on time. This makes lenders feel confident that you’ll pay them back, and they reward you with a lower rate. If you have a bad credit score, lenders try to protect themselves by charging you a higher rate. They might have concerns about your ability to repay the loan, so they want to ensure they are compensated in exchange for the “risk” of lending you money. They do that by charging you more for it.

Is Credit the Only Thing That Matters?

Not at all. That’s good news for West Columbia shoppers with bad credit. Lenders take several factors into consideration beyond just your credit score. One thing lenders consider is your income level and your debt-to-income ratio. They’re looking at how much you make each month and how much is already earmarked for other credit products and accounts (like credit cards, mortgages, and student loans). Maybe you have a low credit score but a high income and very little debt. That looks good to a lender.

Lenders also look at your assets. This is your total liquid cash throughout your accounts (checking, savings, brokerage, etc). If you have a lot of assets, this shows lenders that you have an emergency fund to pay your loan, even if you lose your job. Finally, the lender looks at the value of the car you plan on buying. A newer car will usually mean a lower rate because newer cars are worth more than older ones. If the lender has to repossess the vehicle, they are more likely to get their money back on a newer car than a used one.

How Can I Get a Better Rate?

If you aren’t happy with the rates you’re being offered, there are a few things you can try. First, opt for the shortest repayment period that you can afford. The shorter the repayment period, the lower the rate. The monthly payments will be higher, but in the end, you’ll spend less on interest (i.e., the cost of money will be lower).

If you can afford it, put together a larger down payment. That way, the amount of money you have to borrow is less, and the monthly payments will be less. It doesn’t necessarily get you a better rate, but it makes payments more manageable. Also, consider finding a cosigner. If you know someone with a good credit score who is willing to cosign on your car loan, this could get you a better rate.

A salesperson is shown passing a car key to customer.

Don’t Let Bad Credit Slow You Down!

As you can see, having a bad credit score doesn’t mean you can’t get a car loan. It simply means you might need to do a little more preparation than others to make sure you get the best offers. At Mazda of Columbia, we are always happy when West Columbia shoppers with low credit come to us for guidance and support. Our finance team is highly knowledgeable and experienced in working with bad-credit shoppers. They know about every trick, tip, and loophole to help you get a better rate or to make monthly payments more manageable. Don’t let a low credit score deter you from shopping for a vehicle. You have more power and options than you might realize. You just need to work with a dealership and lender who know how to help.