It’s easy to feel discouraged about your future when struggling with issues such as bad credit. Just because your credit isn’t what you’d like doesn’t mean you can’t find get a car loan, though. In many cases, your idea of “bad” credit may still be good enough to qualify you the car loan you need with terms appropriate to your situation. However, if you’re worried about finding a car loan with bad credit, give the following strategies a try.
Establish Reasonable Expectations
You’ll be better off if you head into car buying with the understanding that you’ll probably have to pay higher interest rates than if you had good credit. Check with credit bureaus, so you know what your credit actually looks like. While you’re checking your reports, watch out for any inaccuracies or errors that could be corrected for a better rate. Finally, consider more than the monthly payment in determining what you can afford. Don’t forget you’ll have insurance, fuel costs, and maintenance costs.
Research Your Options
A lot of lenders may offer subprime loans right off the bat, but this could leave you with terms that are less favorable than necessary. For example, if you have a low credit score and an established credit history, your qualifications may be better than for a person without any credit history and poor credit. Also, your credit score may be better or worse depending on the type of loan you want. A credit score that qualifies you for subprime mortgage terms may still qualify you for near-prime terms in an auto loan.
Brush Up On Loan Terms
Sometimes lenders will offer you lower monthly payments that comfortably fit your budget, but for a very long time. Ultimately, this type of loan will result in a much higher total payment than the actual worth of the vehicle. You could be left with auto payments long after the vehicle has stopped working. Instead, negotiate for a low annual percentage rate and as short a period of time as possible. You may need to consider less expensive vehicles, but you’ll be better off in the long run.
Discuss Your Options With Multiple Lenders
Even if you aren’t sure you can get a loan, talk with your bank or credit union first. You could also discuss auto financing options with your employer or with your insurance company; sometimes these organizations offer financing and you may have better luck where you have a history. Of course, you can also turn to lenders who are known for offering a car loan with bad credit. These lenders often specialize in working with clients with poor credit. Sometimes, these lenders have connections with local, regional, and national banks.
Take Time to Read and Understand the Contract
You may come across car dealers who offer non-prime loans only if you’ll sign up for an extended warranty or a commitment for after-market services. Make sure your contract doesn’t have any of these add-ons; you’ll end up paying more overall for nonessential goods or services. If you aren’t sure you’ll recognize these additions, take someone along with you. This shopping partner may be someone more familiar with legal contracts, if possible. At the very least, your companion could make conversation with the sales rep while you’re studying the contract.
Make Sure the Contract Has Been Finalized
If you’re financing your loan through a car dealer, you may be exposed to “yo-yo scams.” These scams involve contracts with contingent or conditional terms. You may be contacted a few days or even weeks after you thought the terms of the loan were complete and told that your monthly payments will increase or that you need to pay more on your down payment. You may be told that the financing isn’t finished, and you’ll have to agree to a higher interest rate. Don’t leave the dealership without confirmation that the terms have been finalized. If you’re not confident that you’ll spot scams, brush up on some of the most common contract scams.
Don’t be lured into bad loan terms just because you have a poor credit score. With some advance research, a good understanding of what you can expect, a determination to get the best terms you can, and a time frame that allows you to study the contract and consider your options, you can get an acceptable car loan with bad credit.