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.
Bad credit doesn’t have to result in bad terms
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.
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.
Due to poor credit ratings, a lot of people have their car loan applications turned down.
This can often be attributed to their poor preparation for the application process or the poor timing of their application.
Presently, owing to the economic recession, people with low FICO scores can often obtain credit services from money lenders.
Financial institutions sell loan products with the aim of making interest. It has, however, become necessary for these institutions to switch to less demanding requirements for granting loans.
Only a fraction of clients seeking loans today can fulfill the previous, more stringent demands.
Qualifying for an Auto Loan with Poor Credit
A bad credit car loan will allow you to get the vehicle you really want – new or used – without having to pay too much over time. Possible reasons that your bad credit auto loan application may be rejected include:
- Inadequate or incorrect data
- Incorrect submission of forms
- Not filing credit reports, bank statements and employment info
However, minimum earnings of $2,000 every month are necessary for any car finance loan. Carefully select a car insurance option that befits you, since insurance is added to the car purchase charges.
It is advisable to do research to ensure you prepare and submit your loan application correctly.
Knowing your credit score makes it easier to understand what you’ll need to get a car loan with bad credit.
getting a normal loan
You will be required to pay a higher interest rate and make a higher down payment.
Interest rates for bad Credit Car loans range from 5% to 26% and normally vary based on your credit score. The loan is paid back after 2 to 5 years.
Based on the severity of your bad credit, your required down payment can vary from 20%-50%.
Normally, the down payment affords borrowers the chance to negotiate better interest rates.
It is important that a borrower is informed enough to avoid paying extra for bad credit loans.
Be certain that you can afford the cost of the car plus the dealer’s profit, as this is what you will be paying for.
Be wary of lenders that make false assertions. Certain lenders can’t afford to take the risk of lending to those with bad credit.
Carefully search for and compare all the available bank credit loan options before opting in. Pay attention to the terms and interest rate proposed by lenders.
The fact that you’ve qualified for a bank credit loan doesn’t readily mean you should accept it. If you feel you can’t repay the loan, then don’t borrow until you are sure you can pay it back.
Only for Individuals with a Poor Credit History
Having a bad credit history doesn’t necessarily make you a bad person; it may only be the evidence of hard times.
Loan lenders now understand this, and this has led to the introduction of bad Credit Car loans. Now a bad credit history shouldn’t prevent you from acquiring that dream car.
To obtain a loan from conventional loan providers like banks, credit lending institutions, and some car manufacturers, you will require awesome credit ratings and a high FICO score.
Since a lot of people cannot meet these conditions, they cannot access these loans.
Now, experienced lenders have taken advantage of this opportunity and are now providing loans for the vast majority of individuals with poor credit rating.
Companies can make substantial interest from these loans. These days, a lot of financial institutions have embarked on the business of giving loans to individuals with poor credit ratings.
The internet is replete with information on institutes that provide bad credit auto financing. Their interest rates, turnaround times, loan options, and loan tenures are usually included on these sites.
Numerous sites also have online loan calculators for the easy computing of loan tenures and other information; you can use these to find a repayment plan that works for you.
To make a good car loan deal with a loan provider, you need sound negotiation skills. Use an expert negotiator if you are in doubt of your negotiation skills.
Besides getting you cheaper deals, these experts will work to make sure that your auto loan application is duly prepared and organized.
Here are tips for getting a car loan with bad credit.
Know your credit score
Before you begin the shopping process, it’s important that you know your credit score. Tools like myBankrate offer free credit reports, and can also help you understand the factors behind your score.
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.
Research, research and research
It’s important that you prepare as much as possible so you’re not caught off guard when the time comes to negotiate.
Research should include key terms, like Annual Percentage Rate (APR), which refers to a loan’s yearly interest rate. If you’re buying used, it also helps to know the Kelley Blue Book value of your preferred car.
Once you begin the shopping process, don’t just limit yourself to just one lender. There are a variety of lenders that offer car loans for bad credit. And they may want to compete for your business.
Even two candidates with an identical credit score may not be the same in the eyes of a lender. Even if your score is tarnished, you may have a better chance than someone with the same score and no (credit) history.
Don’t dawdle — lenders run a hard credit check during the application process.
Hard credit checks signal to credit bureaus that a borrower is about to take on more debt, and can result in a dip in your credit score.
Draw out the process for too long, and it could become more difficult to negotiate favorable terms.
To be safe, we recommend visiting around three different lenders in a 14-day period.
Pre-qualify with banks and credit unions
Even if you don’t think you can get a loan, go to your bank, go to your credit union first.
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.
Be sure the terms are final
If you finance through a dealer, always make sure the terms are final before you sign. If you don’t, you may face higher monthly payments or an increased down payment in the future.
It’s known as a “yo-yo scam.” Dealers tell car buyers their financing is not complete and they must accept a higher interest rate.
Avoid subprime lenders
Subprime lenders can seem like a sure bet to anyone wondering how to get a car loan with bad credit. These lenders usually cater to customers with lower credit scores.
Make the car buying process seem easy and stress-free — at first.
Subprime car loans can come with sky-high interest rates and aren’t likely to help you improve your credit score.
Many subprime loans also use your vehicle as collateral. So if you fail to make payments, you risk losing your car altogether.
Always do your research beforehand, and only consider subprime lenders if you are unable to find another financing option.
Shop loan terms, not monthly payments
In reality, they may lead to you paying more for your car over the life of the loan.
Because car loans for bad credit can come with higher APRs, you may end up paying more than the car’s full value by the end of the loan.
When you’re shopping, look for the most favorable terms — usually the lowest APR over the shortest period of time.
That way, you’ll have more manageable monthly payments with reasonable interest rates. If you’re unable to find a low APR, you may want to consider shopping for a different vehicle.
Bring a friend with you — and consider a co-signer
Ask a friend or a relative to go with you. Bringing someone you trust to the negotiating table can help inspire confidence.
And confidence, combined with know-how, can lead to more favorable loan terms.
If this is someone that you really trust, consider asking them to be a co-signer. Co-signers reduce much of the risk for lenders — they’ll become responsible for the loan should you default on your payments.
Adding a co-signer can be a strong negotiating tool, and usually results in a lower interest rate.
Be absolutely sure you can make payments before taking on a co-signer. If you fail to make payments and the debt falls on them, it can permanently damage your personal relationship
Look out for add-ons and scams
Non prime buyers are more likely to encounter lending contracts with non-essential goods and services.
Never allow the loan to be contingent on purchasing any add-on, such as extended warranties, after-market services, and even insurance.
You need not worry even if you have experienced severe financial issues in the past. With “no credit check” car loans and adequate planning, you can overcome these issues and get back on your feet.
To find out which car dealers may be willing to finance people with iffy credit, pay attention to radio commercials or billboards from dealerships.
Things such as “Your job is your credit” or “Bad credit? No Problem!” These are good places to start.
There are numerous “no credit check” car loan dealers and manufacturers with different modes of operation.
Research and review various companies, then choose the best deal after careful analysis. Some may demand higher interest rates; others require a larger sum as down payment.
You should opt for a company that allows a fair amount of down payment as well as low interest rates.
Even with a bad credit history, “no credit check” car loans deliver an interesting alternative that can finally put you behind the wheel.
With a good plan, you will certainly find a bad credit car loan to finance that dream car.
In summary, you don’t have to pass through hell just because you have a bad credit, just follow the procedures discussed in this article and you will have a smooth loan process in the future.