Bad Credit? You Could Still Get an Auto Loan!
Before You Apply for A Loan
Credit score: Check your score and work on improving it, if you don’t need a car immediately. To do that, pay all your bills on time and clear any missed or late payments. Reduce your debt as it will put you in a better financial position and improve your credit utilization ratio. Also, check your credit report for any errors or mistakes and have them corrected immediately. These simple steps could help improve your credit score, and in six months, you may even be in a position to get good terms on your car loan.
Research lenders: Once your credit score is okay, explore your options. Check out terms at banks, credit unions, and online auto loan lenders. If the terms here aren’t great, there are lenders that specialize in offering loans to people with bad credit. Their interest rates are usually high, but if you really need a loan, they can help you out. Some car dealerships also work with people with bad credit. Search online, and you’ll find plenty of options.
Save for a down payment: Ideally, save as much as possible and offer it as a down payment to borrow as little as possible. It will give lenders and dealers confidence in your ability to pay back, and you may get better terms.
During Loan Application
Co-signer: Getting a co-signer increases your chances of getting a car loan at a decent rate. Your co-signer is someone who will be responsible for paying off your loan when you can’t.
Buy-here-pay-here dealer: These are loans offered by car dealers themselves. You may find this easier, but interest rates are usually much higher, and the chances of your car being repossessed are higher.
Second-chance car loan: If you’ve been turned down for a loan, a second-chance lender will try to offer finance options that you could get approved for. But the interest rates and fees could be rather high.
Credit union: These have always been known to offer loans with reasonable terms and low-interest rates. Check if you’re eligible for a membership or have access through work, and get pre-approval for the best deal possible.
