We all hear the radio commercials and see the various television ads promising an auto loan regardless of bad credit all the time. While those ads sound appealing, it is a little more difficult than that in many cases. They will use like language like, "no applications refused" or "all applications accepted" to lead you to believe that anyone can get a car loan from them. What they don't tell you is that there is a huge difference between accepting an application and approving a loan. All it really means is that they will let anyone apply but you won't necessarily be able to buy a car from them.
If you are in a position where you need to buy a car but you have really bad credit and no money for a down payment, you are going to have to get a bit creative to make it work. It doesn't mean you won't get financing for a car, it just means you will probably have to jump through a few more hoops to do it. There are a few different options you take if you are in this situation.
Using a Co-signer to Get a Loan
The first and probably the best way to get financing is to find a co-signer with good credit that is willing to go on the loan with you. You will still probably end up having to pay a higher interest rate but it will certainly improve your chances of being approved. Just be sure you are both willing and able to meet your payback obligations as you will do serious damage to you co-signer's credit if you default on your loan. I have seen many good relationships with friends, family members, and loved ones ruined because someone failed to take proper responsibility for their loan payments.
Putting Up Collateral as a Down Payment
Another option would be to secure the loan with collateral such as the title to another vehicle you already own. In some cases, lenders will allow you to use things like boats, motorcycles, and ATVs as collateral in lieu of a down payment. Depending on where you are purchasing your vehicle, you might have to make this a two-step process by first obtaining an auto title loan and then taking the cash and using it as a down payment for your car.
Using Short-Term Payday Loans
If you have a job but you don't own anything to use as collateral for a loan, you could also apply for a short-term or payday loan to get the cash you need for your down payment. I don't recommend this method for amounts over about $1,500 as the interest rate you will pay is typically very high and will significantly add to the cost of your vehicle. In might be more economical to just wait until you can save up enough money to make a conventional purchase.
Buy Here, Pay Here Car Dealerships
If you are flexible as to where you are willing to go to buy a car, there are many dealers that offer direct financing for people with bad credit. These dealers are often called "buy here, pay here" businesses. You do have to exercise caution with these establishments however as they have been known to artificially inflate the price of the vehicle to make up for the added risk they take on by providing financing to people with a poor credit history and no down payment money. This can create problems down the road when you need to get insurance for a vehicle as you will only be able to get coverage for the actual value of the car. You should also be prepared to pay very high interest rates if you decide to go with this option. This can put you in a position where it could end up taking you a very long time to pay down the balance on your loan.
Specialized Bad Credit Auto Lenders
It is almost always better to go with one of the larger and more established auto loan providers who specialize in bad credit lending. You still won't get the most attractive rates and perks available to buyers who have good credit but at least you get a little more protection against questionable business practices that could potentially end up further damaging your credit.
Remember, your goal is not only to obtain the financing your need to buy a car but also to put yourself in a position where you can rebuild your credit so you don't find yourself in the same situation again in the future. Also keep in mind that even though you may feel like you are in a desperate position, you are still the customer and there are many car loan providers who are competing for your business.
Don't be afraid to shop around a little and see where you can get the best rate. Just be sure to make most of your inquiries within a short period as multiple requests for your credit history over a prolonged stretch will further lower your credit score. This reduction is temporary but if you are right on the edge of being able to qualify, it could be enough to push you just below the threshold of where you need your score to qualify for a loan. Don't get discouraged! It may take a little time but with a little creativity and some savvy research, you should still be able to buy a car.