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5 Mistakes to Avoid When Financing a Car with No Credit or Less Than Perfect Credit

Jul 02, 2025
Car shopping
In This Blog, We'll Talk About:

  • Check Before You Apply: Review your credit report and correct errors before financing — your score directly impacts your loan terms.

  • Don’t Overstretch Your Budget: Know what you can realistically afford using auto loan calculators and avoid long-term financial stress.

  • Prep Before You Shop: Get pre-approved and consider a co-signer or co-borrower if needed — both can improve your chances and secure better rates.

Having a good credit score is the key to a solid financial future. In fact, those who have no credit or less than perfect credit might have a challenge when it comes to financing a car. While having a few negative marks on your credit history isn’t ideal, don’t be discouraged. Avoiding these common mistakes can greatly improve your chances of approval and better loan terms.

5 Financial Missteps to Avoid Before Financing a Vehicle 

Misstep 1: Not Checking Your Credit Score Before Applying 

When financing a car, it's imperative that you have an idea of your credit score before you apply and go through the car loan process. Your credit report will have a major influence on the rate and terms of your car loan, so it’s imperative that you review your credit report for accuracy and address any errors that could affect loan conditions first. If you have to make corrections to your credit report, taking the time to fix them before you apply is a smart idea. 

Misstep 2: Ignoring How Much Car You Can Afford

Even though you may have a dream car in mind, be careful not to overestimate your budget. Take advantage of Auto Loan calculators to determine an affordable monthly payment or purchase price that best fits your budget and finances. Resist the temptation to splurge when it comes to financing a car, because failing to accurately assess affordability can lead to future financial strain. 

 

Misstep 3: Overlooking the Importance of a Down Payment

Providing a down payment reduces the loan amount and lowers your monthly payments. It's a good idea to put down between 10 and 20 percent of the car's value. If that amount isn't possible for you, put down as much as you can afford or take some more time to save up. Putting something down is better than putting no money down.

Misstep 4: Skipping Pre-Approval Before Car Shopping

Getting pre-approved before you go car shopping is always a good idea. It gives you a clear understanding of your loan terms and the budget to stick to. A pre-approval can also strengthen your negotiation power with car dealerships and prevent disappointment from falling in love with cars that are outside of your budget.

 

Misstep 5: Not Considering a Co-Signer or Co-Borrower When Needed

If you're working with little credit or less than perfect credit, exploring the option of a co-signer or co-borrower can be a smart move. Each option can help you secure better loan terms. Here’s how the two work:

  • Co-Signer: A co-signer on a loan has secondary responsibility for the loan without ownership. This means only the borrower has ownership of the asset that the loan covers (i.e., home or vehicle) but the co-signer is also financially responsible for the loan.

  • Co-Borrower: A co-borrower on a loan is jointly responsible for the payment with shared ownership. This means the borrower and co-borrower share equal financial responsibility for the loan as well as ownership of the asset that the loan covers (i.e., home or vehicle).

 

Explore Specialized Car Financing Programs at PCU

Our experienced team is here to help members navigate this process and will work to get you pre-approved so you know exactly how much you can afford before going to the dealership. Whether you're financing a car for the first time or have less-than-perfect credit to work with, we offer a variety of Auto Loans with low rates, fast answers, and flexible terms. Contact us today for more information, or get started today and apply online!


 


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