Having bad credit is no deterrent to obtaining a car loan but the source may be dubious and the terms unsatisfactory. In order to get a good car loan offer with bad credit advance provision is needed. It is crucial to find financing by comparison shopping before buying a vehicle, and thus know what level of loan you qualify for. Also find out what auto insurance premiums you would be charged so that the full monthly costs of owning a vehicle are transparent upfront.
Bad credit means that higher interest rates are going to be levied on a car loan, and higher premiums charged on auto insurance. Therefore the best way to achieve a good car loan offer is to obtain your credit reports and credit score in advance, and work to improve your credit. Erroneous information can be removed from credit reports which will improve credit, as will simple measures such as paying all bills on time and reducing high balances.
It is important not to apply for other lines of credit in the months preceding applying for a car loan as these will lower credit still further. If you can improve your bad credit it will improve your chances of receiving a good loan offer, whilst allowing more time to save up a car deposit. Once a car loan is secured it will help to further improve credit providing all payments are met in a timely manner. Paying the loan by automated payments may help to secure a discount as well as ensuring payments are made on time.
A good deposit of at least 20% of the purchase price will improve your chances of a lower interest rate. A responsible co-signer who is willing to guarantor the loan will also work in your favor. A secured car loan will offer a better interest rate than an unsecured one, as the car will stand as collateral for the loan.
It is vital to comparison shop for loans and factor in small print details such as additional fees. If these are added to the balance of the loan they can put you over budget, so always be aware of fees and pay them upfront so they don’t incur interest over the term of the loan. Don’t be tempted to borrow more than you need as some lenders may try to persuade you to take a larger loan than needed.
Traditional lenders have tightened their loan criteria and are unlikely to offer a car loan with bad credit. Online sites deal with subprime lenders and the advertised rate may not be the rate offered. The best step is to receive a pre-approved auto loan from a reputable lender. This allows for the option of using that loan or taking dealer finance. Having a pre-approved loan puts you in a better bargaining position when it comes time to buy, even with bad credit.
Applicants with bad credit will not be able to obtain the best loan offers available. Taking steps to comparison shop, improve credit, have a good down payment and become familiar with the types of loans on offer will help you to secure a better loan offer. If continued improvement is made on credit history there may be the opportunity to refinance the loan on more preferential rates.