Having bad credit can throw up all kinds of roadblocks in your life, especially if you’re trying to take out an auto loan. The paradox, of course is that one of the best ways to improve your credit is to borrow money and pay it back on time—but borrowing money with bad credit can be exceedingly difficult. Luckily, getting an auto loan with bad credit is still possible. Here’s how:
Know What to Expect
It’s important to understand upfront that having a poor credit score usually means paying a higher interest rate. So if you are able to secure a loan, you will likely end up paying more in the long run than someone with better credit. With that in mind, one of the keys to getting an auto loan with bad credit is being a savvy shopper, and looking for the best deal you can find. It might also require making a few compromises.
Know Your Score, and Improve it if You Can
The Consumer Financial Protection Bureau recommends checking your credit report before making any major purchase that involves a loan, and buying a car is no exception. Credit reporting companies are required to provide you with a free credit report upon request once every 12 months. Seeing your credit report will let you know exactly what your credit score is, and provides an opportunity to improve your credit before applying for a loan. You may even find mistakes on your credit report that, once fixed, will boost your rating.
Determine Your Budget
Long before setting foot on a car lot, it’s essential to work out how much you can afford to pay for a car. Be sure to consider monthly payments as well as finance charges, and keep in mind that you can reduce your monthly payments, as well as the total loan amount, buy putting down a larger down payment, or by trading in your previous vehicle. Arrive at a realistic price tag and stick to it, even if it means buying a used car instead of a new one, or foregoing add-ons like extended warranties, service contracts and GAP coverage.
Get Pre-Approved for a Loan
Pre-approval will give you a solid idea of how much a lender will be willing to offer you. This allows you to shop more realistically, and with a full understanding of the terms of your financing (you may also be able to get approved for a loan with better terms if you apply with a creditworthy cosigner or co-borrower). Talk with your bank or credit union about their pre-approval process for getting an auto loan. If your bank isn’t able to offer you pre-approval, your car salesman may be able to put you in contact with a lender who caters to those in search of an auto loan with bad credit.
For even more info on getting a car loan, check out 2018 Best Auto Loan Sites.