5 Mistakes to Avoid When Financing a Car with Bad Credit - Dick Says Yes | Used Cars Portland

5 Mistakes to Avoid When Financing a Car with Bad Credit

In this blog post, we’ll guide you through five critical mistakes to steer clear of when financing a car with bad credit. From the allure of skipping pre-approval to the risks of signing a contract you don’t fully understand, we’ll provide you with the insights you need to navigate the car financing landscape confidently. Whether it’s choosing the right car for your budget or shopping around for the best loan, our aim is to arm you with the knowledge to make empowered decisions. Let’s dive into these common errors so you can drive off the lot not just with a new set of wheels, but with peace of mind and a plan for a brighter financial future.

Hands on a keyboard checking a credit score

Mistake #1: Not Checking Your Credit Score

One of the most common and critical mistakes potential car buyers make is not checking their credit score before applying for a car loan. Your credit score is a numerical representation of your creditworthiness, and it plays a significant role in determining whether you get approved for a loan, as well as the interest rate and terms you are offered.

Lenders use your credit score to assess the risk associated with lending you money. A higher credit score indicates that you have a history of managing your credit responsibly, while a lower score may suggest to lenders that you are a higher-risk borrower. By not checking your credit score before applying for a car loan, you are essentially going in blind, unaware of how lenders will view your creditworthiness.

Fortunately, accessing your credit score has never been easier. You are entitled to one free credit report from each of the three major credit bureaus—Equifax, Experian, and TransUnion—every 12 months through AnnualCreditReport.com. Additionally, many credit card companies and financial institutions offer free credit score access as a part of their services. There are also various online platforms where you can check your credit score for free. Here is a list of some services that you can use:


  1. Credit Karma: Provides free access to your TransUnion and Equifax credit scores, along with credit monitoring and financial tools.
  2. Credit Sesame: Offers a free monthly TransUnion credit score and credit monitoring services.
  3. NerdWallet: Gives a free TransUnion VantageScore 3.0 credit score and credit report information.
  4. WalletHub: Provides daily updates to your TransUnion VantageScore 3.0 credit score.
  5. Experian: Offers free access to your Experian credit score and credit report, updated every 30 days.
  6. MyFICO: While primarily a paid service, MyFICO occasionally offers free trial periods during which you can access your FICO score.

Credit Card Companies:

  1. Discover Credit Scorecard: Offers a free FICO score to everyone, not just Discover cardholders.
  2. Chase Credit Journey: Provides free access to your VantageScore 3.0 credit score, even if you are not a Chase customer.
  3. Capital One CreditWise: Available to everyone, not just Capital One customers, offering free access to your TransUnion VantageScore 3.0 credit score.
  4. American Express MyCredit Guide: Offers free access to your VantageScore 3.0 credit score and TransUnion credit report for American Express cardholders.
  5. Citi Credit Knowledge Center: Provides free access to your FICO score for Citi cardholders.
  6. Bank of America: Offers free FICO scores to eligible Bank of America credit card customers.

Understanding your credit score before applying for a car loan is crucial because a low credit score can significantly impact your ability to get approved. Lenders may be hesitant to offer a loan to someone with a low credit score, and if they do, it is likely to come with a higher interest rate and less favorable terms. This can result in you paying significantly more over the life of the loan.

By checking your credit score in advance, you give yourself the opportunity to address any issues that may be negatively impacting your score. This could involve disputing errors on your credit report, paying down outstanding debts, or taking other steps to improve your credit health. Taking these actions before applying for a car loan can increase your chances of approval and help you secure more favorable loan terms.

People signing pre-appoval documents

Mistake #2: Skipping the Pre-Approval Process

When shopping for a car loan, especially with bad credit, one of the steps you can’t afford to skip is getting pre-approved. Pre-approval is essentially a lender’s conditional agreement to lend you a certain amount of money at a specific interest rate, based on your creditworthiness. Here’s why it’s so beneficial:

Benefits of Pre-Approval:

  • Budget Awareness: Pre-approval gives you a clear idea of what you can afford, helping you to shop within your means.
  • Negotiation Power: Walking into a dealership with a pre-approval in hand puts you in a stronger negotiating position.
  • Faster Buying Process: With pre-approval, you can expedite the car-buying process since you’re effectively a cash buyer.
  • Credit Protection: Pre-approval involves a credit check, but it’s better to have one hard inquiry from a lender you choose than multiple inquiries from dealerships running your credit.

Getting Pre-Approved with Bad Credit:

  • Check Your Credit: Even with bad credit, it’s important to know exactly where you stand. Obtain your credit report and score so you know what lenders will see.
  • Gather Documentation: Lenders will want proof of income, employment, residence, and identity. Have these documents ready.
  • Shop Around: Don’t just go with the first lender who might approve you. Check with credit unions, banks, and online lenders who specialize in bad credit loans.
  • Be Realistic: Understand that with bad credit, you may face higher interest rates. Look for the best deal under these circumstances.

Importance of Understanding Your Budget:

Before you even step foot in a dealership, you need to understand your budget. This isn’t just about how much you can borrow; it’s about how much you can afford to pay back. Factor in your monthly expenses, savings, and emergency funds. Remember, the cost of owning a car isn’t just the monthly payment — it’s also insurance, maintenance, fuel, and taxes.

By getting pre-approved and understanding your budget, you’re not only preparing yourself for a smoother car-buying experience but also protecting your financial future. Don’t let bad credit make you feel desperate — you still have options and the power to make informed decisions.

People looking at different documents for loan options

Mistake #3: Not Shopping Around for the Best Loan

One of the most costly mistakes you can make when financing a car, particularly if you have bad credit, is failing to shop around for the best loan. It’s easy to feel grateful for the first approval you get, but this can lead to accepting high-interest rates and unfavorable terms that will cost you significantly over time.

Why Shopping Around Is Crucial:

Lenders vary widely in their loan offerings, and what’s considered a high risk for one may be acceptable to another. Shopping around gives you a broader view of the market and helps you understand the range of interest rates and loan terms you qualify for, which can be more favorable than you first thought.

Tips for Comparing Car Loan Rates and Terms:

  • Get Multiple Quotes: Aim for at least three different quotes to compare.
  • Look Beyond Monthly Payments: A lower monthly payment might seem appealing, but longer loan terms could mean paying more in interest.
  • Read the Fine Print: Be aware of any additional fees or penalties, such as for early repayment.
  • Use Online Calculators: They can help you understand how different rates and terms will affect the total cost of your loan.

The Impact of Interest Rates and Loan Terms:

Interest rates and loan terms are the primary factors that determine the total cost of your car loan. Even a slightly lower interest rate can save you hundreds or thousands of dollars over the life of the loan. Similarly, a shorter loan term can increase your monthly payments but significantly decrease the amount you pay in interest.

How Dick Says Yes Can Help:

At Dick Says Yes, we understand that finding the best car loan is about more than just getting approved; it’s about getting a loan that fits your financial situation. Our experts specialize in working with individuals with bad credit and can help you navigate the complex world of auto financing. We have established relationships with various lenders who are willing to work with customers who have faced financial challenges. Our team can help you compare rates and terms to find the best deal for your situation, ensuring that you don’t just say yes to a car loan, but you say yes to a loan that makes financial sense for you.

Remember, when it comes to car loans, the terms and rates you agree to will follow you long after the new car excitement fades. Make sure you’re setting yourself up for a comfortable financial future by shopping around and consulting with the experts at Dick Says Yes.

Happy man receiving keys for his new car in a showroom

Mistake #4: Choosing the Wrong Car

Selecting the right car is just as important as securing the right loan. It’s a decision that impacts your finances and your daily life for years to come. Opting for a vehicle that doesn’t align with your budget and needs can lead to financial strain and the risk of missing payments.

The Importance of Choosing the Right Car:

Your car should fit comfortably within your budget while meeting your practical needs. A flashy sports car might catch your eye, but if it’s not affordable or practical for your daily commute, it’s not the right choice. The wrong car can quickly become a burden, with high monthly payments, expensive insurance, costly maintenance, and poor fuel economy.

Tips for Choosing a Car That Fits Your Budget:

  • Assess Your Needs: Consider factors like fuel efficiency, maintenance costs, insurance rates, and how well the car fits your lifestyle.
  • Set a Price Range: Determine a price range that fits your budget, factoring in all associated costs, not just the sticker price.
  • Research Reliability: Look for cars known for their dependability to avoid costly repairs down the line.
  • Consider Total Ownership Costs: Remember to account for the total cost of ownership, including fuel, insurance, maintenance, and depreciation.

The Impact of Choosing the Wrong Car:

Choosing a vehicle that’s too expensive for your budget can lead to financial hardship, making it difficult to keep up with payments. This can result in late fees, damage to your credit score, and even repossession. On the other hand, a car that’s too cheap may lead to frequent repairs and unreliability, which can also strain your finances and cause missed work or important life events.

Dependable Cars at Dick Says Yes:

At Dick Says Yes, we understand the importance of reliability and affordability in your journey to financial recovery. That’s why we offer a wide selection of dependable cars that cater to a variety of budgets and needs. Our team is dedicated to helping you find a vehicle that won’t break the bank and will reliably get you back on your feet. We believe that everyone deserves a second chance, and choosing the right car is a crucial step in that process. Let us help you make a wise investment in your future with a vehicle that supports your financial goals and daily requirements.

Looking over the contract - illustration of a magnifying glass shining light onto the documents

Mistake #5: Signing a Contract You Don’t Understand

Navigating the final stages of securing a car loan can be daunting, especially when faced with a complex contract filled with financial jargon. Understanding the terms of your car loan contract is not just important—it’s essential. It’s the final agreement that dictates how much you’ll pay, for how long, and what happens if you can’t make payments.

The Importance of Understanding Your Car Loan Contract:

A car loan contract is a binding legal document. If you sign without understanding the terms, you could agree to conditions that are unfavorable or impose financial strains you’re not prepared for. It’s crucial to know what you’re committing to, including the interest rate, payment schedule, late payment penalties, and any additional fees.

Tips for Reviewing Your Car Loan Contract:

  • Take Your Time: Never rush through reading a contract. Take it home if possible and review it thoroughly.
  • Ask Questions: If there’s anything you don’t understand, ask for clarification. No question is too small or insignificant.
  • Look for Hidden Fees: Be on the lookout for any additional fees or charges that weren’t discussed.
  • Understand the Terms: Make sure you understand the terms related to interest rates, total loan cost, payment schedule, and penalties for late or missed payments.
  • Know Your Rights: Be aware of your rights regarding loan prepayment, and what happens if you want to refinance or sell the car.

The Potential Risks of Signing a Contract You Don’t Fully Understand:

Signing a contract without full comprehension can lead to unexpected costs, such as higher interest rates over the loan’s lifespan or hefty fees for early repayment. In the worst-case scenario, it could even lead to repossession of your vehicle if you’re unable to meet the contractual obligations due to terms you weren’t aware of.

Our Commitment at Dick Says Yes:

At Dick Says Yes, we prioritize transparency and understanding throughout the car loan process. We walk you through each step, ensuring you get the best deal possible without any confusion. Our team takes the time to explain the details of your contract, from the fine print to the broad terms, so you can sign with confidence and peace of mind. We don’t just want to sell you a car; we want to build a relationship based on trust and clarity, ensuring that you feel secure and informed about your financial commitment. With us, you’re not just getting a car; you’re getting a partner dedicated to your financial well-being.


Navigating the car financing journey with bad credit can be a complex process, but being aware of common pitfalls is half the battle won. To recap, the five mistakes to avoid are: not checking your credit score, skipping the pre-approval process, not shopping around for the best loan, choosing the wrong car, and signing a contract you don’t understand. Each of these missteps can lead to long-term financial strain, but they are easily avoidable with a bit of diligence and knowledge.

Take the time to thoroughly understand each aspect of the car financing process. Doing so will empower you to make informed decisions that align with your financial goals. Remember, despite the challenges that come with bad credit, there are options available. There are lenders and dealerships, like Dick Says Yes, that specialize in assisting individuals with less-than-perfect credit.

So, approach the process with patience and caution, and don’t hesitate to seek out resources and professionals who can guide you to the best decision for your situation. With the right approach, financing a car with bad credit can be a stepping stone to improving your credit and achieving your financial objectives.

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