Are you planning to get a car loan but can’t seem to qualify for one due to bad credit? There are 12 tips in this article that can help you get a car with bad credit. But, you have to be prepared to pay a little more in interests or put in more effort in repairing your credit. Here are 12 things you can do if you want to get a car with bad credit.
1. Work on your credit before going car shopping
A history of late payments, high debt, bankruptcy, or repossession is a sign to the lender that you’re at risk of defaulting on your loan payments. So, you need to clean up your credit in advance. Pay off past-due accounts, dispute credit report errors, and add positive information to your credit report. This might take months but it puts you in a better position to qualify for what you want.
2. Avoid additional bad credit items | Get A Car With Bad Credit
Going for a car loan is not an impulsive decision, it takes months of planning. So, in the months leading up to your car loan application, be on your best behavior. Pay everything on time. Don’t take on any other major credit obligations, including new credit cards. Potential red flags for an auto lender include late rent payments, charge-offs, debt collections, bankruptcy, tax liens, and lawsuit judgments.
3. Check current interest rates before buying a car with bad credit
You can check online for the latest average auto loan rates to better understand what rate you should expect. With good credit, you would qualify for a rate at or below average. With bad credit, you’ll typically have a higher interest rate, but be skeptical of any loan rate more than double the average. Your loan rate will affect not only your monthly payment but also the price tag of the car you can purchase.
4. Make a bigger down payment | Get A Car With Bad Credit
Your credit history will limit the size of car loan you can get, and a high interest rate will make the amount even lower. A down payment can offset the interest, taxes, and fees and widen the selection of vehicles you can choose from.
5. Know what you can afford to pay | Get A Car With Bad Credit
Get a car within your budget even though you’re not paying off immediately. Consider how much extra money you have left over after paying bills each month. That’s the amount you’re able to afford. Check your budget to see what you can really afford to pay and stick to that amount, even if you’re approved for a loan with bigger payments.
6. Get pre-approved
You can shop more realistically when you have a pre-approved loan amount to work with. Talk to your bank or credit union about getting a car loan and to find out the pre-approval process. If you can’t get approved with your bank, your car salesman may be able to put you in contact with a lender who caters to car buyers with bad credit.
7. Skip the extras
When you’re buying a car with bad credit, you may not be approved for high loan amount, which may mean you have to curtail your fantasies. Leather seats, sunroof, and a premium speaker system may not be options when you’re trying to buy a car with bad credit. You’re already facing a higher loan payment because of the interest rate. Don’t make it bigger by adding features to your car.
8. Check with nonprofit agencies
Before you take on an expensive car loan, check to see if your state has any nonprofit agencies that provide loans or vehicles to low-income consumers.
9. Tread carefully with buy here, pay here
Buy here, pay here car lots offer on-site financing with less stringent credit qualifications (sometimes with no credit check). But, they also have a reputation for being overpriced, selling poor-quality vehicles, and taking advantage of consumers with bad credit. Ask for recommendations for a dealership, and check the value of the vehicle and the vehicle history.
If you can, take a mechanic friend shopping with you to check out the car to make sure it’s in good condition.
10. Read and understand 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.
Some shady dealers let you drive away without signing, then call you back to sign papers with terms that are drastically different from those to which you originally agreed.
11. Don’t buy with the expectation of trading for a new vehicle in a couple of years
One of the ways car salesmen get you into a car is to build up your hopes of trading in next year. This might sound like a great deal, but when you do this, the balance of the old loan is added to the new loan and your payments increase or your repayment period extends. Don’t trade unless you improve your credit and can qualify to refinance at a lower interest rate.
12. 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.