Just because your credit rating is less than perfect doesn’t mean you don’t want or need a new car. The question becomes how do you get a car loan with bad credit? The answer is that bad credit car loans are out there, but there are a few things you need to know before you start shopping for that new automobile.
A low credit score is typically defined as anything under 629. There are many reasons your score may be low, with some of them not being your fault, but the score does have a direct impact on whether or not you will get a loan and the interest rate you will pay if you do. Having said that, there are ways to get you that new car even with a lower credit score including the following:
1. Be sure to check your credit – Just because the car dealership says you have bad credit, don’t automatically believe them. You should go ahead and have a credit check pulled for yourself, so you know where you stand. You’ll want to take this credit report with you to your lender or the car dealership, so you are both on the same page.
2. Know your lender options – You may be buying a car, but that doesn’t mean you have to get the financing at the car dealership. Credit unions and banks will often give you a better interest rate. Also, if there is an item on your credit report that is impacting your score, you can address the issue with the lender. If there was a good reason for the issue, you will find that some lenders will work with you to get you a car loan.
3. Ask for a shorter loan term – Many bad credit car loans will charge much higher interest rates than what is charged for someone with great credit. You can offset this high-interest rate by asking for a shorter loan term. This does mean that your monthly payments will be higher, but shorter loans tend to have lower interest rates. So, instead of getting a five or six-year loan, try for a three or four-year loan term, and you will save a lot of money on interest payments.
4. Buy a newer car – When you start your car search, start by looking at new cars. The interest rates on these cars are lower than older models. If a new car won’t fit into your budget, then check out newer used cars first. This is another area that you can save money in the long run due to lower interest rates.
5. Ask someone to cosign – If you have a family member that is willing to cosign your loan, this can help you get the loan and receive lower interest rates. If you make your payments on-time, a cosigner can also improve your overall credit score. Keep in mind that if you do not make the payments, the cosigner will be responsible for them.
6. Check out sub-prime lenders – Subprime lenders specialize in loans for those with less than stellar credit. You can actually find these lenders online and apply online as well. Just keep in mind, these lenders will charge you higher interest rates, so be sure you can’t get a loan at the car dealership or bank before you go this route.
7. Up your down payment – If you have some extra cash, you might want to consider making a larger down payment. This will show the lender that you are committed to the loan, as you have more of your own money in the car upfront, and it will also reduce the amount of the loan, so your payments will be lower as well.
8. Know your budget – Before you start shopping, know how much you can afford to use as a down payment and how much you can afford to pay each month. Once at the dealership, don’t allow the shiny new cars and the salesman’s spiel talk you into a car that you won’t be able to make the payments on. By sticking to your budget which should be in line with your income, you are more likely to be approved for bad credit car loans.
While it is never fun trying to buy a car when you have bad credit, it certainly can be done. Just plan ahead, know what you want, know your scores, and you should be able to find the loan and car that is right for you.
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