You have bad credit and you know it. It was not a situation you planned on, and in fact, it may be due to circumstances totally out of your control, such as a job layoff, unexpectedly high medical bills, a messy divorce, or a wide variety of other reasons. But your bad credit is something you are working to resolve and you are aware of it.

Although your bad credit situation and label will get resolved in time if you work at it properly, one of the problems is that you may need a car loan NOW, not when your credit problems are behind you. So what are your options?


Even in these economic times, the financial lending market is very competitive and can be very aggressive if you shop around. Although the interest rate you will pay is probably going to be higher than if you had an AAAA credit rating, the good news is that you can, more than likely, get approved for a car loan even with your bad credit.

Remember, the interest rate charged by the lender is a direct reflection of many factors, and most prominent of those is your credit score and credit history. The lending market is a financial game, where the lender is assessing his risk in getting repaid if he approves a loan. That risk factor that the lender is going to incur is a direct reflection of the interest rate that you will be assessed.

For your new car loan, the more money you can put down as a deposit on the car is going to be to your benefit. This is not simply a matter of lowering the total amount of money financing, but has a deeper almost psychological meaning. In other words, if you are dipping into your own pocket for that deposit on this new car, then the lender sees you as having a vested interest in the car, having put some equity into the new car loan, and from a psychological standpoint you are then less likely to default on the new car loan.

Another option, perhaps to be used in conjunction with a deposit or down payment, is to put up some kind of collateral. This would be something of value that you own that would "back up" your car loan, with the thought being that if you default and things really go south, the lender would have legal right to repossess the car AND take whatever item(s) you put up as collateral. Obviously this type of drastic action is something that the lender hopes will never happen, but again, the lender is hedging his risk knowing that this option is a possibility and that you are aware that this could happen.

Above all, shop around for your car loan. Even if you have bad credit, it is clearly not in your best interests to just accept the first loan that is approved without doing additional shopping. Some people maintain that shopping for the right loan and best loan is every bit as important as negotiating the price on the new car, if not more so, because the difference between an "acceptable" loan and a "great" loan can mean the difference of several hundred or even several thousand dollars by the end of the loan term.

Your bad credit car loan can be a reality for you, but you need to know the rules of the game and what your options are. Be sure to shop around to allow yourself the opportunity to get the most cost effective car loan possible.