Your credit score shouldn’t stop you from getting the car you need. While shopping for bad credit cars can be tricky, it’s nothing a little preparation can handle.
With some work, you’ll be able to find a car loan with monthly payments that fit right into your budget.
Follow these 7 steps and you’ll have everything you need to get a car with bad credit and secure that auto loan today.
You won’t know how bad your credit score actually is until you get a copy of your credit report. You’ll find many websites and online tools that offer free credit reports, so you can easily obtain these months in advance of your car buying experience.
Your credit report will provide important details that contribute to your credit score; risk factors such as unpaid debt and bankruptcy, for instance, pull your credit score down.
Once you know what your credit score is, you can get to work on rebuilding your credit. This will make you look like less of a risk to lenders, who may be inclined to give you lower interest rates.
Making delinquent payments, for instance, may help in improving your credit score.
It’s always a good idea to take some time to shop around for bad credit car dealers in your area. Do some comparison shopping to make sure you’re getting the best auto loan terms possible for your budget.
Car dealers will want to compete for your business, no matter how poor your credit score is. However, you should also keep in mind that drawing out the shopping process for too long actually hurts your credit rating.
Each lender you visit runs a hard credit check when you apply for a bad credit auto financing. These credit checks indicate that you’re taking on more debt, resulting in a lower credit score.
Financial experts recommend visiting up to three different lenders in a 14-day period.
If you’re feeling a little nervous about your trip to car dealerships, consider taking a friend with you. You may feel more confident about negotiating better terms for your loan if you’re with someone you trust.
Confidence, backed up by research, gives you a better chance of getting a car loan that’s more favorable to you. You can also ask your buddy to be a co-signer for your loan; the co-signer will become responsible for paying the monthly payments should you default on the loan.
Having a co-signer for your loan usually results in lower interest rates, too.
A bad credit car dealership may try to take advantage of you by giving you low monthly payments that are actually stretched out over a longer term.
These deals may seem like a better fit for your budget, but, given the higher annual percentage rates on these loans, you’ll end up paying more than the car’s full value by the time the loan’s term is complete.
Instead, focus on the loan’s term and its APR to ensure that you’re making the most of your budget. This will help you find a car loan with manageable monthly payments and more reasonable interest rates.
You’ll also bad credit or no credit car dealers who’ll try to convince you to go for expensive add-ons to your car loan. Extended warranties, aftermarket service, paint protection, rust protection – all of these extra services will only boost the overall price of the vehicle, so you’ll end up having to pay more.
Make sure you don’t get lured by sales talk at the dealership so you can stick to your budget and prevent your credit situation from worsening.
You should also walk away from bad credit car dealers who tell you that approval for your car loan depends on your purchase of add-ons.
If you opt to go with in-house financing at car dealerships, take the time to carefully read through the loan documents. Make sure that the loan terms you and the salesperson verbally agreed on are also the terms that are laid out on paper.
Don’t be afraid to point out inconsistencies and inaccuracies and have these errors fixed. Once you’re satisfied with every detail of your auto loan, you can sign the documents.
Signing the loan documents before driving the car off the lot also helps you avoid yoyo scams, where dealers tell buyers that their financing hasn’t actually been completed and they now have to accept higher interest rates.
Subprime lenders – sometimes called bad credit specialists – will claim to have your best interests at heart. These lenders cater to car buyers who have the lowest credit scores, offering auto loans that only look good on paper.
Subprime car loans actually have excessively high interest rates and loan terms that may be too strict to follow until the end of the loan. Many of these loans also use your vehicle as collateral, so you risk losing your car if you happen to default on your car loan.
You have financing options other than buying a car on bad credit. If you don’t need a car for long period of time, why not lease a car instead? Car leasing agreements usually require lower monthly payments and a smaller down payment as well.
Maintenance is also less of a hassle since manufacturer’s warranty covers the cost for most repairs in leased vehicles. Making on-time lease payments also helps you improve your credit score, so you can get a better deal the next time you need a car.