Buying a car with bad credit: how to do it right

Bad credit makes buying a car harder, not impossible. Here's how to do it without getting burned.

1. Know where you stand

Pull your free credit reports at AnnualCreditReport.com. Look for errors — a paid-off account still showing a balance, a debt that isn't yours — and dispute them. You don't need a perfect score; you need to know what a lender will see.

2. Build a real budget

Lenders care about what's left after your bills. Add up rent, utilities, phone, insurance, child care and other debts. Keep your total vehicle costs — payment, insurance and fuel — to a comfortable share of your take-home pay. Financed vehicles usually require full-coverage insurance, so get a quote before you shop.

3. Put down what you can

A bigger down payment lowers what you finance, and can improve your approval and terms. Trade-in equity counts too — check yours with our trade-in page.

4. Choose the car for the next three years, not the next three weeks

Reliability matters more than features when you're rebuilding. A dependable vehicle keeps a breakdown from turning into a missed payment.

5. Read every number before you sign

Federal rules require clear disclosures: the amount financed, annual percentage rate (APR), finance charge, number of payments and the total you'll pay. Every used car on a dealer lot must also display the FTC Buyers Guide showing whether it's sold with a warranty or "as is." If anything is unclear, ask. A good dealer will explain it.

6. Watch out for red flags

• "Guaranteed approval" promises before anyone has looked at your situation
• Pressure to sign before you've seen the final numbers
• Add-ons you didn't ask for buried in the paperwork
• A payment quoted without the APR and the number of payments

7. Pay on time and rebuild

Set up payments around your payday. A year or two of on-time payments can open doors to better rates on your next vehicle.

Get pre-approved online in about two minutes.