Bad credit doesn’t have to result in bad terms. Having bad credit doesn’t make it impossible to get a car loan, but it does mean you’ll probably have to pay more. Instead of diving into an expensive car loan, it may pay to take steps to improve your credit before you get behind the wheel of a new car. But if you can’t wait, comparing loan offers and making a down payment could help you find a loan that fits your budget. Unfortunately, if you have bad credit, it may be tougher for you to get a car loan. You may face less favorable terms or even predatory lending practices.
However the situation arises, bad credit does not necessarily signal the end of the road for car shoppers. In fact, the good news is that there are many qualified buyers with poor credit who are taking the wheel with the help of financing. And they can enjoy a lot of the same conveniences as buyers with better credit, such as pre-approval.
Every car shopper’s position is different, and planning your car-buying process may help you understand what’s right for your situation, and how best to achieve it. Here’s how to approach car loans when you have bad credit. The good news is that coming to the negotiating table with preparation and research can help you find a loan with a much lower rate. First, find the loan that’s right for you, and pay it off to help boost your credit score. At that point, consider refinancing. You might find a loan with even better terms. If you have a bad credit score, you might be worried about finding a car loan with favorable terms. Getting a car loan with bad credit can be a tricky business. Some lenders may only consider you for subprime car loans, which often come with less favorable terms and higher monthly payments. But don’t lose heart. Even if your credit score needs work, you can still find a car loan that doesn’t break your monthly budget. And making consistent payments toward a car loan is a great way to repair credit.
These steps could help you lower your cost of auto financing and find a loan that fits your budget.
Check your credit
One of the first things you should do before shopping for an auto loan is to understand your credit. Check your credit reports to see if there are any negative items listed, such as delinquent accounts, that are inaccurate and dispute any incorrect information. You can check your Equifax® and TransUnion® credit reports for free on Credit Karma. It’s also a good idea to check your credit scores to get a look at what your lender might see when reviewing your loan application. Lenders take a range of factors into account when considering an auto loan application from a consumer with bad credit, and most will make a decision based in part on credit score. Although it is not the sole factor, your score plays a key role in determining whether your application will be approved, and, if so, what interest rate you will get, says the bureau. Credit score is an indicator of someone’s creditworthiness, partly influenced by their credit experiences, which are compiled in credit reports. The CFPB advocates getting hold of a copy of your credit report from the national reporting agencies to check for inaccuracies.
These steps could help improve your credit health and score.
- Paying all your bills on time and in full every month, and avoiding late payments
- Paying down existing debt
- Avoiding applying for multiple new credit within a short period of time, if possible
- Purchase a less expensive vehicle
- Get a pre paid credit card, and hold it for 3 months
- Get auto lenders compete for your business. Get Pre- Approved at YOURAPPROVED.COM
Before you begin the shopping process, it’s important that you know your credit score. You can get your free credit report and credit score, and also learn more about the factors behind your score. Get auto lenders compete for your business by getting Pre- Approved at YOURAPPROVED.COM
There may be factors you’re able to address immediately, like making delinquent payments. Taking action to repair your credit score before you begin shopping can help you find a more favorable position with some lenders. One of your most powerful negotiating tools can be pre-qualifying for a loan from a bank or a credit union.
If you have a bad credit score, it may be difficult to pre-qualify for a car loan with bad credit at a bank. Banks are for-profit organizations and are usually more restrictive in who they lend to. But if you have a relationship with your bank, you may have more luck in finding a manageable car loan.
Credit unions are nonprofit organizations usually owned by their members. As a result, they may be more open to lending to a borrower with bad credit. Credit unions do require that their account holders be members, but membership requirements can be easy to meet.
The good news is that car loans for people with bad credit can be found. But being a high-risk borrower in the eyes of an auto lender means there’s a good chance you’ll pay a higher interest rate.
Save for a down payment.
Having a bigger down payment will reduce the amount of the loan you need. Although your credit plays the primary role in your ability to get an auto loan (or any other type of loan), it isn’t the only factor taken into consideration by lenders. They’ll also be looking at your monthly income and current financial obligations to determine how large of a loan payment you can actually afford each month. Based on what the lender believes you can afford each month, it will determine the maximum amount it is willing to lend you. Along those lines, if you are applying for a loan for a vehicle that would require a larger loan than you can comfortably repay (in the eyes of the lender), you will likely be denied that loan because the lender will consider the risk of default to be too high. With a smaller loan means you’ll pay interest on a lower amount, which can mean less interest paid overall. You might also get a lower interest rate if you make a down payment — the amount you borrow versus the car’s value can affect your rate. Keep in mind that a down payment could be cash, a trade-in vehicle or a combination of the two.
Get Pre-Approved With YOURAPPROVED!
The pre-approval process may involve the lender checking your credit reports, credit scores, current income and other expenses to see what loan amount and interest rate you could qualify for. Before applying for pre-approval, consider checking auto loan rates with an online lender, your bank or, if you’re a member, your local credit union.
To minimize the impact that shopping for an auto loan can have on your credit, it’s a good idea to shop for rates within the same time period. FICO® scoring models count multiple credit inquiries of the same type within a 45-day period as a single inquiry. These time frames are something you should keep in mind when shopping around.
If you’re pre-approved, you’ll be able to see terms, including loan amount and interest rate, that you’re conditionally approved for. Keep in mind that pre-approval from doesn’t mean you’re actually approved for the loan. You will need to complete the application once you find a car to see whether you’re actually approved and at what terms.
If you have low credit scores and can’t get pre-approved yourself from a financial institutions, apply with us at YOURAPPROVED.COM. We are Teamed up with the local financial institutions for auto loans and get you and your application to the right people, bypassing all the unnecessary jargon.
How To Better You Credit Score With an Auto Loan, then Refinance later.
If you can improve your credit by making consistent on-time and in-full payments, and by using only a portion of your available credit, consider refinancing your loan to get a better interest rate.
If you’re thinking about refinancing, do the same research you did when you first purchased the car. Shop around for rates and terms with various lenders, and check with your original lender to see if you can refinance at a lower rate.
When you decide on a lender to refinance with, the lender will likely run your credit again and look at your financial history to determine whether you qualify. If your credit or financial situation has improved — say, you got a raise at work or have switched jobs and now earn more — it could position you for a new loan with a better rate and better terms.
Understanding auto loan rates and loan terms
APR includes the interest rate to be charged on the principal loan amount (the sum borrowed to buy a vehicle) and any transaction fees that are rolled into the loan. Together with the loan term, APR will affect the size of your monthly payment as well as how much you pay for the car in total over the life of the loan. A car buyer’s APR may be affected by a range of criteria, such as credit history, current interest rates, competition, market conditions and special offers, according to the Federal Trade Commission (FTC).
By changing the length of the loan term on the auto loan calculator, with APR unchanged, you will see how it affects the monthly payment. A longer loan term, with a greater amount of time to pay back the loan amount, reduces the monthly payment in the calculation, while a shorter loan period results in a higher monthly payment. Depending on the APR, you may end up paying more for a vehicle over the life of the loan with a longer term, when interest charges are taken into account, than with a shorter term. Both loan term and interest rate are often negotiable for qualified applicants.
Money down and trading in a vehicle
When financing a car with bad credit, a down payment or trading in your current vehicle, or both, might help your position. Each may lower the principal loan amount required to purchase a car, and show a lender looking to assess a bad credit risk that you are committed to the deal.
Cosigners For an Auto Loan
A cosigner may have a positive effect on a car loan application for a consumer with bad credit too, and could be a requirement from the lender in some cases. By signing an auto loan contract with you, the cosigner agrees to repay the note should you fail to do so, making any missed payments or even paying the loan amount in full. The CFPB provides more information about choosing an auto loan cosigner and the effect that cosigning a loan might have on the credit of both borrower and cosigner. Each lender will likely have its own specific requirements for a co-signer, but, in general, individuals must have good personal credit and clean credit history, without bankruptcies or other red flags, to co-sign a loan. In essence, the co-signer should be qualified to take on the loan by themselves, as the co-signer is using his or her own good credit to provide assurance to the lender that the loan will be repaid as agreed. Of course, while the primary borrower receives several benefits from their co-signer, co-signing a loan is not without its risks. Even if he or she never drives the vehicle, the co-signer is just as obligated to the lender as the primary borrower — and will suffer many of the same consequences. The co-signer will be considered responsible for repaying the loan should the primary borrower become unable to (or chooses not to) make the loan payments. Furthermore, the co-signer will also receive the same negative credit impacts as the primary borrower in the event of a late payment, missed payment, or default.
Financing a car after bankruptcy, and with no credit history
Consumers who have been through bankruptcy or have no credit experience may think auto financing is off the table, but there are lenders, such as RoadLoans, that accept applications from consumers will all types of credit. A down payment, vehicle trade-in and cosigner are some of the elements that may strengthen an auto loan application in these situations.
By running the numbers on a potential loan, you will have an estimation of the financing that’s right for you and what kind of vehicle you may be able to afford. When choosing a vehicle, car shoppers with bad credit might think about opting for used over new, and an older model rather than a later one. Everyone’s automobile needs and preferences are different, and if fuel economy is a factor for you, a fuel savings calculator is a helpful tool to work out potential expenditure on gas for one vehicle compared to another.
Finding The Right Car Dealership
Few car shoppers enjoy spending hours at a dealership. Finding the right dealer with the right vehicles from the start could make buying a car with bad credit quicker and easier. RoadLoans works with a network of more than 14,000 dealerships across the United States, offering quality vehicles meeting our requirements for age and mileage. Approved applicants receive a list of recommended dealerships, located nearby, within their loan documents to help the car-shopping process. If a dealership is not what you have in mind, that’s fine too.
Buying a car with bad credit is about what’s right for your situation. RoadLoans is a leading auto lender, with many years of experience, which accepts applications from people with all credit profiles. We prepare multiple offers for qualified applicants based on their unique car-buying needs.
If you are denied a loan?
If you are denied a loan because the purchase price of the vehicle you’ve selected is too high, you have three main options. The first option is to decrease the amount of financing you need by providing some form of down payment. This can be a cash down payment, or you can offer a trade-in vehicle.
Many dealers are happy to accept your previously owned vehicle as a trade-in, crediting you with some amount of the trade-in’s value on your new purchase. As you might suspect, the better condition your trade-in vehicle is in, the more value you should receive. To ensure you get a fair deal, research your vehicle’s current value before heading to the dealership.
Without a trade-in vehicle or other form of down payment, your next option is to make an attempt to negotiate with the dealer to reduce the purchase price of the vehicle. Given that most sellers will only have so much wiggle room in their bottom line, this method is least likely to be effective but could be worth a shot.
The last option is to simply select a different vehicle to purchase. This is likely the least appealing to many people, considering the research and legwork that typically goes into picking the perfect car, but it is an effective way to decrease the size of the loan that you need to obtain.