With almost one-fifth of all Americans suffering from bad credit scores, one might wonder how they buy something as expensive as a vehicle. If this includes you, you might be asking how to get a car loan with bad credit. So, how do you get around all the problems that bad credit can cause and pick up a car of your very own?
Below, we have set out a detailed guide for how you can get started. By following it, you can start your journey toward your new car with few problems. So, what are you waiting for?
In short, you have several ways to ensure that you can look for car loans with bad credit. Your options include:
Sensible financing. Trying to accept your situation and looking at what you can do to pay off a loan over time.
Improving your credit. Using the options available to boost your credit and assist you in the long term.
Get help. Use a second person to work with you to get you the loan.
Good advice. Following general good advice to ensure you do not cause yourself financial harm while taking out the loan.
Despite these different strategies, nothing suggests you cannot use them all at once. This will give you the best chance of engaging with bad credit car loans without causing problems.
Before you start this whole process, make sure to check your credit score yourself. After you do this, you will be able to correct any of the many issues that might crop up over the years and dispute them. Thus, you can ensure that your credit score is being calculated using the most accurate information possible.
Several systems exist for you to ask for a credit report. Some are free, but others ask for more money in exchange for more details or services.
If you find that your credit score is too low, one of the options available to you is to try to build it up. Instead of getting out a loan straight away, work to use other facilities to prove that your credit score should be higher. Ways you can do this include:
Do not use too much credit. If your credit limit is $1,000, do not use it all. Use a small amount and then repay it to show that you have a strong handle on your finances.
Make payments. If you have regular payments, other loans, or a credit card, make sure you pay them off. Settling your accounts once every month can show money lenders that you are serious about repaying.
Proving where you live. Register on the electoral roll for your current home. When you do this, the credit services will have a better track of your location to assess you in context.
Once you check your credit score, you will also have a much more accurate and realistic understanding of how others see you. You can then make assumptions about how others are going to respond to your requests for a loan.
When trying to get a car with bad credit, you should be realistic about your present situation. Go over your finances with a fine-tooth comb and work out how much you can afford to pay regularly. You can use this information to work out the kind of loan you should take out.
When calculating this, you should not only pay attention to the cost of the loan itself. There are several other things you might need to pay for:
Fuel: The monthly cost of traveling.
Insurance: Not paying for insurance comes with its own costs, so make sure you keep your vehicle safe. Car loans in Texas cost less than driving without insurance and getting caught.
Maintenance: Resolving wear and tear, or ensuring you can afford to repair accidental damage to your vehicle.
When talking to a lender, you should make sure that you have all your information ready to talk to them. As lenders look for specific reasons that you can or cannot make payments, it is important to be on the same level as them to discuss your situation.
Examples of information that you should have ready to talk about include:
Debt to Income Ratio (DTI): This is a percentage of your monthly income that you lose straight away each month to debt. A high DTI will mean that lenders are less likely to lend to you, as you already have large obligations.
Where your money comes from: You should be able to prove that you have employment and that you have a regular income. Find and document proof of your salary over the prior twelve months, including any non-salaried payments.
If you have extra incoming money, such as child support or disability payments, you should be ready to talk about them. In general, a lender for a vehicle will expect you to have an income of at least $18k before dealing with you.
Payment history: Any credit report will have an idea of whether you repay credit on time. If you have had late payments, you should ensure that you have good reasons for this.
Use of credit: If you are already in a situation where you use credit, a lender will check to see how much you are using. If you are using over 30% of your available credit, this will raise red flags.
Instead of taking the full loan out at once, you could prove to the lender that you can be sensible with money by setting up a down payment. This shows a commitment to repayment and can allow you to take out larger loans than otherwise. This even works if the down payment comprises personal loans or gifts from others in your social circle.
If you are having trouble earning that first lump sum, here are some ways that you can begin this process:
Not everyone has the option of aiming for these, and not all these tips are helpful for everyone. Make sure that you work with what you can do to make yourself happy in the long run.
Not all vehicle loan specialists offer this option. Although if they do, trading in another vehicle allows you to create or boost a “down payment” using the worth of the vehicle that you trade in.
Should you choose to investigate this option, make sure ahead of time that all other users of the car would be okay with your doing this. You do not want to cause contention by taking this option.
You should work with the lender to learn how much a vehicle costs to trade in. Then, this can act as a cornerstone of your plans. You can work out if you need to save up more ahead of time and reduce any loan by the cost of the vehicle.
It is worth stressing that not all lenders allow you to negotiate. Some are only able to offer you what their automated systems allow. Although many others give their dealers a level of agency in working out who is a trustworthy customer or not.
If you can negotiate, do so. Bring your knowledge of your situation with you, as well as a list of other offers you have from elsewhere. You should ensure that the car dealer knows what a good deal it would be for them to offer you a loan.
At the same time, you can work with a friend or colleague. By getting them to come with you, you can display confidence in your position, and they can help you if the process becomes harder.
Another option for bringing someone with you is to get them to cosign on your loan.
A co-signer is someone you trust who has good credit. During the loan process, they can promise to help you as a safety net if your finances alter after you start repayments.
This will increase your chances of getting your loan application approved. The co-signer provides extra security to the lender that they will receive the money on time, no matter what happens.
This does not mean that the co-signer owns the vehicle, or that they have any right to the item you buy. Although, you will put their credit score at risk should you miss repayments for any reason.
You should check that the contract for a loan contains no clauses you find difficult to swallow. It is not uncommon for small issues to crop up over time and cause difficulty for repayments moving forward.
On top of this, you should generally be well-versed in the contract you are signing. As you will lock into the agreement for a long time, it is sensible to have a good understanding of how flexible it is. You may find that you want to pay off more, or less, per month as the repayments continue, and the contract will be able to inform you of how possible this is.
You should also make sure that the contract does not have any clauses that you do not agree to. For example, avoid taking out a contract that demands you agree to an extended warranty or car insurance. Also, ensure that you are not agreeing to any vehicle options you would not otherwise want by signing the agreement.
One common “gotcha” in car loans is the possibility of the repayments increasing over time without your agreement. These kinds of loans are predatory and can cause you serious harm. They even have their own name, “Yo-Yo Financing.”
Instead, you should make sure that all the terms and conditions are final. Small changes based on the mutual agreement of both parties should be acceptable. Be careful of anything that harms you without offering any help in another way.
Few options are available for you when you shop for cars with bad credit. Although, you should take a look at what is out there. Different services will offer you different deals.
You may want to aim for different options, too, depending on your lifestyle and situation. It might be that you want a low APR so that you can have the assurance of low monthly payments. Or, you might be more interested in the shortest payback time possible for your loan.
Try to find something that matches your circumstances so that your repayments do not end up exceeding your ability to pay them back.
The best option for you with the best repayment options might be only a link away.
Pre-approval is when you supply a lower level of information to the lender, with which they can approve the loan in a much shorter timeframe. While the lender might still have to run a full search, a pre-approval allows you to be ready for an expected answer from the lender.
If the result comes back negative, then you can follow one of the above steps to help boost your position. If the test comes back positive, it is time to get that new car!
You should now know how to get a car loan with bad credit and what steps to follow to make that happen. If you want to get started, we can help you on the road to getting on the road.
Our friendly car dealers can talk to you about your options. As we specialize in bad credit, we have advice that is perfect for your situation. We will even be able to guide you in the direction of driving home in a new vehicle, so call us today.