Passing over a fancy new car in favor of a used one can be a smart choice for many reasons. First of all, if you have less than perfect credit, buying a used vehicle might be your best move. Shopping for a used car gives you more vehicle choices, as well. We'll guide you to the best route for getting the reliable used vehicle you need in spite of your less than excellent credit history.

What's a Better Choice, Used or New?

new or used car bad credit

Used cars typically cost less than new, but that's changed in the current market with new car supply at all time lows. But you can still find good deals if you're willing to look. Depreciation is still much worse for new cars. New cars depreciate by approximately 20% in the first year, and 10% in the next two years.

The auto financing process looks different for car buyers with subprime credit versus those with top-tier credit. You can submit a credit application with the dealer, and then it's sent to several subprime lenders. When a lender approves the loan, they provide the maximum amount of approval. If the subprime lender agrees to approve your auto loan, you will need to select a vehicle that works for the allocated amount. Keep in mind that the loan term cannot typically be more than 60 months due to the age of the car.

Can You Get a Good Loan with Bad Credit?

used car loan bad credit
Car buyers with bad credit will have to work harder for that auto loan stamp of approval.

Getting a good rate with bad credit isn't easy. You will not be able to get the kind of low rates buyers with great credit can obtain. But you don't have to go to a dealership when financing a used car with bad credit. Credit unions, Buy-Here-Pay-Here dealers, and online subprime lenders are options, but you have to do your homework.

Credit unions provide more flexibility with less than perfect credit shoppers. Look for credit union memberships for which you qualify, as well as searching for those who offer good rates for those with compromised credit. On the other hand, credit unions also require membership for account holders and some are exclusive to specific consumer or vocational groups. Buy-Here-Pay-Here dealerships won't turn down car shoppers based on a low credit score but they usually have high interest rates and restrictive payment terms. Subprime auto lenders offer second chance car loans and more flexibility for loan approval. Credit score does matter, and your rates here will factor that in.

Should You Pay Cash for Used Car?

buying a used car in cash

If you want to avoid the stress and hassle of finding a loan that works for you when you have bad credit, consider paying cash if you have enough on hand. No private seller or auction will not accept cash, as far as we know. Paying cash for a vehicle offers many benefits, along with a few drawbacks. You can totally bypass interest rates, layers of paperwork, and the length of typical mainstream proceses.

But when paying cash, most buyers can't afford to drop $20k+ on a car. That reduces your number of choices, as well increases the age and mileage of your buying options. You might not get that 2018 Jeep Wrangler you wanted and instead have to opt for a 2012 Hyundai Santa Fe. You might not get navigation or Bluetooth in the car, but you will save quite a bit. What you give up in some areas might get you a truly affordable car with zero interest.