Can I get a car loan with bad credit?
Updated: Oct 22, 2020
Individuals who have a bad credit rating are approved for car loans all the time, and you can be too! Read on to find out exactly how to get a car loan with good or even bad credit.
Although you may believe that getting a car loan with a bad credit rating is impossible to do, be assured, it’s not. Whilst it may initially seem like a challenge, there are a few steps you can take to boost your chances of getting both the loan and car you need.
One of the factors that lenders consider when deciding on an offer of a car loan is based on an individual’s credit score. One of the most frequently used credit scoring models is FICO Scores. The scores range from 300 to 850 with a score of 669 or under regarded as fair or poor. With a score like this, you may not be eligible for every loan – however, with research and proficient planning, you should be able to discover a car loan that works for you.
What steps should I take before applying for a car loan?
Step 1. Check your credit scores – and try to improve them!
When applying for a loan or in fact making any major purchase, an intelligent first step would be getting a free copy of your credit reports. By obtaining this information you will be able to realize where your personal credit falls on the spectrum of outstanding to poor/bad credit. By finding this out, you can apply for loans that are targeted at your credit profile.
If getting your car can be postponed initially, it is a smart idea to work on improving any bad credit scores before applying for a new loan. By doing this, you enable yourself to become eligible for better contract terms and a lower interest rate. This translates into saving you money overall, so it is worth improving credit scores. Below are a few tips on how you can improve your credit scores:
· Ensure any bills you have are paid on time. Also, guarantee any late or missed payments are paid off, along with accounts in collections. Payment history is vital for assessing whether you have a good or bad credit rating so improving this then improves your score.
· Try to reduce any debts. Clearing your debts not only puts you into a better financial position when you apply for a loan, but it also improves your credit utilization ratio. This is calculated by dividing your total revolving credit balances by your credit limits. It is advised to maintain a utilization ratio under 30%, or below 10% for the best scores.
· Analyse your credit reports for errors. Sometimes errors can be made, and these problems may be causing a negative effect giving you a bad credit score. By making sure these are removed your credit report may have a better credit rating for your car loan.
· Take advantage of professional Credit Repair help. Access financial expertise knowledge allowing you to get the car and the lowest interest rate loan you want, even after you come to us with bad credit. Let our trusted team support and reassure you that they will improve your credit score to allow for the best possible interest rate loan offer you could want. Click here to sign up for credit repair.
Step 2: Research Different Auto Lenders
If you are finding it hard to get approved for a car loan from regular lenders, it may be a good idea to try a car loan with lenders who solely focus on providing a service for those with bad credit. Often these lenders will offer higher interest loans however, they do help those with bad credit who need to get a car in a hurry. These types of dealerships might have agreements with subprime borrowers or finance the loan you need themselves. The best place to look for car loans for those with bad credit is online.
Step 3: Secure your money for a down payment
Putting down money initially may enable you to qualify for a better interest rate, decrease your monthly payments, and reduce the amount of time you pay off your car loan. Money-in-hand will be taken into consideration when assessing the risk of giving you a loan, even if you do have bad credit. It is worthwhile to save for a down payment if you want to get approved for the car loan you need.
Step 4: Assess what is in your price range
Be realistic with the monthly car loan payment you can afford and use this to determine a car that is in your price range. Also, in preparation for sales negotiations, make time to research current average car loan interest rates so you have an idea of what is affordable. Again, all these can be found online.
What if you can’t use any of these methods … How do you get a car loan with bad credit?
If time pressures mean you do not have time to improve your bad credit scores before applying for your car loan, here are some alternatives that may help you get the car you need.
The option of a Co-signer
By having a co-signer who has a good credit score themselves the likelihood of getting approved for a car loan is increased and may mean you get a better interest rate. The premise behind a co-signer is that they are assuring the lender if you don’t pay back the car loan, they will.
Providing another person means the lender can rely on someone else paying them back if you default on the loan, meaning you are more likely to be approved. This may also affect the interest rate as the perceived lower risk may mean an offer of a lower interest rate – saving hundreds or even thousands over the duration of the loan. Be reminded that the new debt will appear on both your co-signers and your own credit report. Therefore, if you are late on any payments or miss them completely it may impact both your credit scores.
Try a Buy-Here-Pay-Here Dealer
This option means you choose both the car at the dealership and the finance. Differing from third-party lenders, this case takes the dealership itself as the finance company. The same entity casts a decision on the approval of your car loan. This often allows them to offer more flexibility in providing loans for individuals with bad credit scores.
There are downsides to these types of loans though as they usually have higher interest rates than other lenders, paying instructions such as paying in person may be required and missed payments could lead to a higher chance of the car being repossessed.
Numerous lenders in this category don’t report these accounts to the three credit bureaus, so you cannot use these types of loans to improve your bad credit rating. You can ask them directly and find out if they do report to the credit bureaus as it is a good idea to try to use any loan to improve your bad credit.
Find a second-chance car loan
Second chance car loans do what they say on the tin – in other words, they provide a second chance for those with bad credit. A second chance lender will try to provide you with financial options that you are almost sure you will be approved for, unlike those in a conventional car loan company. Again, these do come with pitfalls of higher interest rates and fees. Search for these types of car loans for people with bad credit specifically, online.
Check with a credit union
It doesn’t matter if you are already a member of a credit union or not, when considering getting a car you may use one, as they are known to offer loans with good terms and low-interest rates – often working with those who have bad credit.
Finding a credit union that is associated with your employer or professional organization may be an option to gain pre-approval for a loan before you seek your vehicle within a dealership. Knowing this, you can have confidence in choosing a car you can afford.
Credit union membership may be limited depending on your employer, where you live or any other groups you may be associated with. Contact credit unions directly to seek help with getting a car loan and bad credit.