The first thing that comes into the head when thinking of bad credit auto financing is that it’s actually impossible. However, even though finding the appropriate automobile loan with favorable terms may be difficult, matters stand differently if you apply simple tips and tricks.
Tips for Getting a Car Loan with Bad Credit
Above all, you need to get acquainted with different tips to consider when buying a car with bad credit.
1. Check Your Credit Score and Enhance It
Before looking for a new car, find out what credit score you currently have. You can request a free copy of your credit reports from all three major credit bureaus – Equifax, Experian, and TransUnion. Consider the fact that the better score you possess, the better options you have. If your credit score is below 660, try to improve it before applying for a new loan. Try the most efficient ways to rebuild your credit. The options range from paying off all the current debts to fixing the existing errors.
2. Fix Credit Report Errors
If you have found some mistakes on your credit record, you have the opportunity to dispute them. The process of fixing the errors takes 30 days as a minimum. But the output might be worth waiting for. Keep in mind that this step can help improve your credit score and raise the chances to obtain the desired amount at a better APR.
3. Understand How Auto Loan Terms and Rates Work
The Annual Percentage Rate (APR) consists of the interest rates charged on the principal amount and all the transaction fees rolled into the loan. It could be affected by different factors like credit history, competition, special offers, market conditions, etc.
A longer loan term (with the same APR) can reduce the monthly payment, while a shorter loan term leads to a higher monthly payment. However, when interest charges are taken into account, borrowers might have to pay more in the end with a longer-term loan, than with a shorter-term one. Both the terms and interest rates are typically negotiable.
4. Opt for a Shorter Loan
Try to shop around for the best loan terms instead of appealing monthly payments. Even if it might look affordable – these loans could cause a higher payment over the life of the loans. Set a target to find a reasonable lower interest rate along with the shortest period and adhere to it.
5. Shop Around for the Best Auto Lenders
Although the lenders whose target group are people with bad credit typically operate with higher interest rates, they may be the only available option for you. It’s essential to do some research, looking for various auto lenders. Don’t limit your research to a day or two. To find the best available option extend your research for about two weeks and get a loan in one hour.
6. Figure Out How Much You Can Afford to Pay
It’s crucial to calculate the amount of money you can afford to borrow. Check your savings and carefully assess your financial situation. Consider your current budget and stick to it when starting to look for a vehicle. Anyway, you can choose another vehicle in your affordable price range.
7. Get Preapproval from Credit Unions and Banks
To better prepare for the automobile shopping process, you could consider pre-qualification for auto financing with a credit union or a bank. It will help you to determine if you qualify by analyzing your income, spending, and credit reports.
8. Consider Subprime Lenders as a Last Resort
This type of auto-lenders may seem a good option for those with poor credit scores. However, you should be aware of possible pitfalls. Subprime auto credits can negatively affect your credit score as they always come with high interest rates, and sometimes, they can use your car as collateral. It means you risk losing your vehicle if you fail to make monthly payments on time.
9. Make Sure the Loan Terms Are Final
When financing through a dealer, it’s important to read the fine print carefully and make sure there are no prepayment penalties or other conditions that haven’t been previously agreed upon. Otherwise, you may face higher monthly payments or an unexpectedly increased down payment. This point is closely related to scams and leads us straight towards the next tip.
10. Watch Out for Scams and Add-ons
Nonprime car buyers may face possible scams when signing lending contracts. The main things to avoid are possible scams and pricey add-ons, such as extended warranties, car insurance, and after-market service.
11. Bonus Tip. Refinance Your Car Loan
Refinancing can help you save hundreds over the life of the loan by lowering the monthly payments and auto loan rates. In order to be considered for refinancing, you typically must have a good history of making on-time payments (for at least one year). Your current scores and your credit history will also be taken into account.
Your Options for Buying a Car with Bad Credit
Do you need a vehicle as soon as possible, and you can’t wait to enhance your credit score? Consider these alternatives.
Make a Down Payment
If you couldn’t rebuild your credit before buying an auto, be ready to make an up-front partial payment for the car. The more money you’ll be able to put down, the less money you’ll borrow. It will help you to save money and stabilize or even improve your financial situation. The final sum you have to put down depends on three things: your score (how low it is and why), the cost of the vehicle, and the dealer you’re going to work with.
Enlist a Co-Signer
A co-signer with good credit can positively influence your chances to get approved for a personal loan with better APR. It will convince the lender that the debt will be completely repaid on time despite the fact you have low credit scores. Make sure your financial situation allows you to accept the proposed loan conditions. Otherwise, you risk damaging your relationship with the co-signer if the debt falls on him.
Consider a Buy-Here-Pay-Here Dealer
In this case, the dealership is the finance company. They profit from the auto sale, and you may receive financing even with poor credit scores. These types of loans can seem the most suitable solution for people who need to get car loans for bad credit immediately. Nonetheless, there are some pitfalls that you should be aware of. First of all, the APR is much higher. Also, you may face specific payment instructions to pay in person. Last but not least, there is a risk of your vehicle being repossessed if you miss your payments.
Look for a Second-Chance Auto Loan
This option is similar to the previous one, and obviously, it has the same caveats, such as a higher interest rate and fees. However, this option can be an excellent solution to get approved for a loan in case you don’t meet the criteria for a conventional auto loan.
The easiest and fastest way to apply for a bad credit auto loan is to do it online. Moreover, you receive an instant decision regarding your online loan request, just like in case of loans with fast approval.
Auto Loans for Bad Credit
If you don’t have the timeliness to compare different lenders on your own, you’re welcome to check out the most reliable places to find car financing with bad credit for a new or used car:
The online vehicle buying center specializes in car loans for people with bad credit. Borrowers can benefit from a simple, secure, and free online application and an instant decision based on the provided information.
CarsDirect Auto Finance
The company offers competitive prices for all models, along with low down payment options, free online submission, and no processing fees. It possesses a nationwide network of auto dealers specializing in all credit types. It means each consumer can apply for an online loan even with bad credit, bankruptcy, or no credit check at all.
Auto Credit Express
The company’s main goal is to help people with any type of credit situation to acquire auto financing for a new or used car. The consumer is able to request a loan through an easy online application and get an immediate lending decision. The application process is completely free, and the prices are affordable for any budget.
How Do Car Loans Affect Your Credit Score?
Getting automobile loans will undoubtedly impact your credit scores. But the consequences and the final effects will depend on how you make payments.
First, a lender usually forwards your payment history to one of the three major credit bureaus. Along with it, your repayment history becomes part of your credit report. That’s why it’s essential to repay the debt according to the schedule to avoid undesirable notes in your credit records.
If you miss a single payment, it will negatively impact your scores. Consequently, too many missed payments can cause your car repossession by the lender. However, making all the payments on time can have a positive impact on your credit scores and improve it over time.
Bad credit does not impede getting a car loan. Of course, it may be more difficult to get financed; however, it’s indeed possible. Follow the provided tips and try different options that work for you.
– Can I get a car loan with a 500 credit score?
Yes, you can. However, you can expect to meet an APR that will be approximately 10 percent more than a standard interest rate for a super-prime borrower. However, experts recommend having 660 and above for buying a car.
– Where can I get a car loan with a 500 credit score?
Many online lenders are designed to help you with financing a car with bad credit, including Auto Credit Express, Car.Loan.com, myAutoloan, CarFinance, etc.
– Where can I get an auto loan with bad credit?
The main providers of bad credit auto loans are direct lenders, such as a bank, a credit union, and different finance companies, as well as indirect ones, such as a dealership, that typically works with direct lenders.
– Can I get a car loan with a 450 credit score?
Because a vehicle usually acts as collateral for the loan, you may successfully obtain an automobile loan with a 450 score or even lower.