Bad Credit & Negative Equity
If you have low credit (a credit score that makes lenders see you as risky) or owe more on your current car than it's worth, you're a common target for predatory terms and high-pressure tactics. This guide helps you keep control and avoid getting buried in debt.
You Are a Target
"Subprime" buyers (people with lower credit scores, usually below 620) get the worst deals in the car business. Here's what they'll try:
Negative Equity Rollover: "We'll pay off your trade!" sounds great, but it often means they add what you still owe into your new loan. Example: you owe $30k on a car worth only $20k—that $10k "gap" gets added to your new loan, putting you even deeper in debt.
Buy Here Pay Here (BHPH): These are car lots that do their own financing, targeting people who feel they have no other options. Interest rates can be extremely high (20-30%+), and terms can be unforgiving. Some lots install GPS trackers or "kill switches" to disable your car if you miss a payment. Read every term and calculate the total cost before signing.
Yo-Yo Financing (Spot Delivery): They let you drive home before financing is final, then call days later saying "financing fell through" and push you into worse terms—higher interest rate, longer loan, more money. This may be illegal or regulated differently depending on your state—treat it as a major red flag.
Check Your Negative Equity
"Negative equity" (also called being "underwater" or "upside down") means you owe more on your car than it's worth. Enter your numbers below to see the gap. If you "roll over" this debt into a new loan, this amount gets added to what you're borrowing—and you pay interest on it for years.
Call your lender for the exact payoff amount
Get quotes from CarMax/Carvana for comparison
Net Equity Position
DANGER ZONE
You owe more than the car is worth. If you trade this in, the dealer will add this $3,000 to your NEW loan. You will be paying interest on a car you don't even own anymore.
What is GAP Insurance?
GAP (Guaranteed Asset Protection) insurance covers the difference between what your insurance pays and what you owe if your car is totaled or stolen.
• Dealer option: can be expensive and may be rolled into the loan (increasing total cost)
• Your insurance company: sometimes available as an add-on
• Credit union/bank: sometimes offers GAP (or similar) — ask before you sign
Tip: Compare GAP options before buying. Start with your insurer or credit union.
Don't Make It Worse
When you're underwater, it’s easier to get pressured into a bad deal. Before you buy, run the VIN to check for title brands/total-loss history, theft flags, and odometer issues (coverage varies by provider).
Check Vehicle HistoryTip: Verify your payoff amount by calling your lender directly. Dealer estimates can be wrong or outdated.
Subprime Battle Plan
Don't skip steps. They count on you being lazy.
Phase 1: The War Room
Bad credit makes you a target. Prepare carefully.
Know Your Credit Profile
Check your reports before shopping.
Get Pre-Approved (Outside Financing)
A pre-approval (a 'yes' from a lender before you shop) is your benchmark.
Set a REAL Budget
Include insurance and maintenance—not just the car payment.
Avoid 'Buy Here Pay Here'
BHPH dealers do their own financing and profit from your desperation.
Should You Wait?
Sometimes waiting to improve credit saves thousands.