If you have bad credit, you’re not alone. Around 25% of consumers are considered sub-prime – meaning they have a credit score below 620, usually as a result of not paying bills on time, going through bankruptcy, or repossession.
Getting a car loan with bad credit really depends a lot on the current lending climate as well as factors such as your income, how long you’ve been at your current job, and how much debt you currently have.
Looking for a car loan? Car Loans of America is here to help.
Back in the good old days before the financial crisis (2005-2007), people with terrible credit were easily getting financed. Shortly after the crises. Even people with great credit were having a hard time getting financed.
If Your Credit Score Is Above 550
Thankfully, lenders are more willing to finance these days and if your credit score is above 550. You have a good chance of getting some sort of auto financing.
Be warned, however, if you have bad credit, you’re way more likely to get ripped off – first by paying a much higher interest rate, and secondly by the car dealer who is trained to take advantage of your situation.
Therefore, it’s very important that you exhaust all your options in order to find the best auto financing deal. This can easily save you several thousand dollars over the life of the loan. If you have bad credit, the good news is: many reputable lenders are prepared to give you a second chance. Getting a car loan with bad credit is possible – provided you tick the right boxes and provide the lender with good reasons to extend you a loan.
Submit Poor Quality Applications
Many people in this situation submit poor quality applications – often the same poor quality application – over and over, hoping that one will eventually be approved. Unfortunately, this approach does not work. Finance companies tend to be quite rigid in their lending criteria – they’re looking for good reasons to approve your finance application. You need to demonstrate those reasons.
Let’s take a look at the steps you should follow in order to get a decent car loan with bad credit.
Know Your Credit Score and Check for Errors
This may sound boring, but checking your credit score is vitally important. Not knowing your own credit rating is the dumbest mistake you can make when trying to get a car loan – you will be taken advantage of.
First, check your credit score for free at FreeCreditScore.com.
If your credit score falls in the 620 to 650 range, you’re actually fine. You should be able to find financing from more than one source.
Happen to have a credit score between 550 and 620? You’re going to have a more difficult time. But there is definitely hope.
If It’s below 550, you’re in serious trouble. If you can even find financing. It’s going to be at a very high-interest rate.
Whatever your score, your next step should be to check your credit report. You can get one free report from each of the 3 leading credit agencies at AnnualCreditReport.com.
Check for errors – specifically any late payments that shouldn’t be there. If you find any, take the steps to fix them immediately.
Get Quotes from Online Lenders
Now you need to start fishing and see if you can get any lenders to approve you for financing. Online loan aggregators are your best bet. Especially ones that specialize in sub-prime loans
These aggregators send out your loan application to over 100 lenders. So you have a good chance of getting financing.
Once you complete this step, you’ll know within a day whether you got approved by any lenders. Make a note of the best rates you were offered because your next step is to start comparing to other lending sources.
It’s vital to be completely honest in every statement you make in your application. If you have a bad credit history, you can be sure that financiers will investigate your loan application closely. Failing to disclose your previous credit history only for it to be found by the financier is an immediate red flag and your application for finance will be declined.
Of course, honesty alone is not enough. You need also to be careful you make complete statements in your application. Don’t leave anything relevant out. Withholding information even information that you believe might damage your application is a much worse idea than full disclosure.
Loan & credit card history
If you have a credit card, or cards, or any other loan, your repayment history there will be carefully reviewed. You need to demonstrate a consistent history of making the payments.
In the case of a credit card, it’s a good idea to demonstrate you’ve made more than the minimum monthly payment required. A solid recent history with credit will go a long way toward ensuring your current application is reviewed favorably.
A reliable, regular income is essential because you need this to service any future debt the financier may approve. If you have a solid employment history. This will reflect well on your application, generally, you’ll need to have been employed beyond the probationary period with your current employer to be considered stable.
If you’re employed on a casual basis, you’ll need to demonstrate a reasonably long relationship with that employer – say, more than 12 months. In general, having had many different employers in a short span of time doesn’t assist a bad credit car loan application. Because finance companies are looking for you to demonstrate a solid, stable income source to service the debt.
Contact Your Local Bank and Credit Unions
If you were able to get approved by one of the online lending sources – that’s great. Now you have ammunition and can start comparing with other lending sources without being at a complete disadvantage.
If no online lender approved you, that’s okay too. We just need to keep exhausting all the options.
The next step is to call your local bank (hopefully you have a long relationship with them). See if they will offer you car financing.
Dealer Arranged Financing
Hopefully, by now you will have gotten at least one car loan approval. If you did, you’ll know the maximum amount you can finance and thus figure out what kind of car you’re able to purchase.
With bad credit, you’ll most likely be limited to buying a used car. Your choice of vehicle is going to be based on whatever is available in your area within that price point.
You should expand your choice to at least 2 or 3 different vehicles manufactured by different brands. The reason being – some manufacturers will offer sub-prime financing through their captive finance division and it’s worth finding out if you can get a loan through them.
Getting A Loan Through A Dealer
The only way to get a car loan through a manufacturer’s finance division is to go through a dealer. You will want to contact the different dealers and see if they can beat the loan offers you already got.
Most dealers have relationships with several lenders that work with sub-prime borrowers. Hopefully, you have at least one loan approval that you can compare it to. Otherwise, you’re in a somewhat difficult situation.
If a dealer finds financing for you, and you don’t have any other rates to compare it to, you’re likely going to get fleeced.
Dealers will use this against you and will try to get you to buy a car that you may not even want – a car that they’re trying to get rid of because no one else wants it.
They will also try to get you to buy extended warranties and useless add-ons that you don’t need – all because they know you’re desperate.
Regroup and Consider Your Options
If you were approved for financing, but at a very high rate – you need to determine if that is something you can afford and whether it’s worth it. If you don’t really need a new car, you should pass on it, save money and work on improving your credit.
You also need to realize that a car loan is not set in stone. You can always refinance after a year of making payments on time – at which point you should have a better credit rating and be able to qualify for a lower interest rate.
If you weren’t able to get financing through the sources listed above, you may want to look into getting a co-signer. This is someone who is willing to take the risk of paying off the loan in the event that you can’t make payments.
Usually, it’s a parent or other close relative.
You should only consider this option if you have a stable job and are sure you can make the payments on time.
If you have any doubt about your ability to pay back the loan, your smartest option is to just wait and save up enough money either for a large down payment or to cover the total cost of the vehicle.
One other option is to check out Working Cars for Working Families, a non-profit organization that helps working families acquire vehicles.
Watch out for scams.
People with bad credit are the target of countless scams. Don’t fall victim to predatory loans, no matter how much you want to be in a new car.
Too often these loans end up poorly for the car buyer and result in yet another blemish on an already tarnished credit record. No matter how desperate you are for a new vehicle, take your time, get all the facts, and make the most financially sound decision you can.
Read all the paperwork.
Loan documents can be confusing, but your money and your credit are on the line, so it’s important to take time to understand the terms of the loan. Make sure the paperwork matches what the dealer verbally agreed to.
If you agree to the terms, sign the loan documents before you drive the car off the lot.
Getting an Auto Loan If You Have Zero Credit Score
Gather the Records and Documents
You may need a copy of the bank statement, evidence of occupation, and any kind of paid bills such as the utilities or phone bills. Most of these will clearly show the loan provider that you can make your payments on your auto loan.
Find a Co-Signer
A co-signer can get the responsibility of your monthly payments. You should be very mindful of the particular risk that the cosigner is in. In case you don’t pay out your loan, it falls on your cosigner to do so, or else their credit score gets impaired. It is important to have a decent relationship with the cosigner and deal with your loan with respect.
Ask Car Dealers Next
If the loan company is not able to give you a loan, ask the auto dealer you consider to buy your car from and what type of auto loan options they have.
A car dealership is quite prone to try to get an auto loan on your behalf in order to earn profits. Remember that a car dealership loan will normally cost you more than a loan from the bank.
Make Monthly Payments in A Timely Manner
After you get your auto loan, always try to make your monthly installments by the due date. This is your first key entry in your credit rating, and good starting may result in a much better credit score sooner or later
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.
Car Loans Of America is here to help.
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. With Car Loans of America, our bad credit auto loans in Compton, California and surrounding areas are beneficial in the long run!