If so, you’ll be glad to know that there are lenders that can give you the financing you need, even if your credit history is less than clean.
Contrary to popular belief, you don’t need to have perfect credit to get a loan. This is excellent news for those with hiccups on their history who still need reliable transportation.
Getting a Car Loan With Bad Credit
Will you have to put in more work to get favorable financing if your credit is bad? Yes, but at least getting that financing is a possibility, as long as you follow these steps.
1. Check your credit score.
It’s a good idea to know exactly where you stand in terms of your credit score before applying for a loan. You can do this by getting a free copy of your credit report, which can be done at no cost once a year.
Once you see your score, you’ll be able to match it to the different types of loans that are out there.
2. Increase your credit score.
The higher your score, the easier it is to get a loan. And despite how bad you think your situation may be, you can raise your score by making these moves:
- Check your credit report for any errors and dispute them.
- Pay any past due amounts on your bills.
- Pay down any open credit card balances to improve your utilization ratio.
- Start paying the bills that you have on time.
- Don’t open any new credit accounts.
If you see any negative items on your payment history, contact the company involved and see if they will remove them. It’s a shot in the dark, but it can work and increase your score.
3. Figure out how much you can afford.
Create a monthly budget that factors in your income and expenses. Using that, estimate how much of a car payment you can realistically afford so you don’t get in over your head.
Once you have your monthly payment in mind, it becomes easier to figure out how much car you can purchase.
4. Compare lenders.
There are plenty of lenders that offer car loans for bad credit. Before sticking with one, you should see what the competition has to offer in terms of interest rates.
Keep in mind that the bigger the down payment you make, the better the interest rate, as you’ll be seen as less of a risk. It can also make the difference between getting approved and rejected.
As you shop around, don’t worry too much about inquiries hurting your score, as you have 14 to 45 days to look for loans. Use this time to your advantage and remember that the inquiries will count as one.
5. Get a pre-approval.
You’ll be better prepared and can save time if you get pre-approved for a loan. It will also give you a more exact idea of how much car you’ll be able to buy. To get pre-approved, information like your income, expenses, credit report, and credit score will be analyzed.
If you get rejected, look into getting a cosigner that has a stable income or credit history. Using a cosigner may result in loan approval, but they will be responsible if you fail to make payments.
Examples of Auto Loans for People With Bad Credit
Here are some lenders that specialize in bad credit auto loans:
- RoadLoans – Good if you have a bankruptcy in your past that has been discharged.
- New Roads – Worth a look if you have poor credit, bankruptcy, or repossession in your past, but still want a low interest rate without making a down payment.
Another option if you have bad credit would be to purchase your car from a buy here, pay here dealership. You can also look into second-chance or subprime car loans that are an alternative when regular lenders reject you.