If you have a bad credit, it is not the end of the world. You still can buy a car and get an auto loan with appropriate terms that will not crack your budget.
Auto loans with bad credit are relatively easier to get than other loans with bad credit because they are collateral, which means the lender can repossess the vehicle if you don’t pay up. That’s why lenders consider such loans less risky than others.
Available Options for Auto Loan with Bad Credit
Big Bank
Don’t think that big banks will not consider to give you an auto loan with bad credit. Of course, there will be no delicious offers with 0% APR, but there are other pros. You will be confident that you work with a reputable institution and you may get pre-approved even without leaving the house. In general, big banks option will not work, If you want to buy a car from a private seller or a lease buyout, or if the car is too cheap or too expensive (price range differs for different banks; try to stick between $4,000-$40,000).
Special Financing
There are companies that specialize in auto loans with bad credits. Be aware of scams, though. In most cases, you will need a monthly gross income of $1,500 to apply for the auto loan in such institution. They offer more instruments and accept more vehicles without price restrictions. Just be sure, that the company is reliable, and check the documents.
‘Buy Here Pay Here’ Dealerships
‘Buy here pay here’ dealerships sell cars and provide loans simultaneously when other financial institutions don’t want to take the risk.
Lead Generators
These online instruments will offer you multiple lenders that are willing to work with you. In most cases, they will also provide useful information, financial calculators, interest rate estimators, and other content. It is useful if you want to prepare and check multiple lenders at once.
2016 Nissan Maxima. With MSRP starting at $32,510 it is an extreme boundary for a big bank’s auto loan with bad credit. © Nissan Motor Co., Ltd.
Useful Tips
Check Your Credit Score
The annual percentage rate of charge (APR) greatly depends on your credit score. Don’t take a dealer’s word, check it yourself. It is especially important for those who has a poor credit score to know exactly how bad the situation is. You may use Equifax or analogs.
Try Out Several Lenders
Every lender treats the credit score differently. That’s why you have to shop around and find the one that offers better conditions. Don’t focus on specialized bad credit lenders – your own bank or credit union is the best place to start, because they have some knowledge of your finances and might be able to offer a good deal, along with the confidence that comes with doing business with an established financial institution.
Consider Shorter Loan Terms Instead of Lowest Payment
It is common for dealers to offer the lowest possible monthly payment in the first place because it will assume the longest possible loan term and the highest overall payment. Ask for shorter terms instead, if you want to save on interest, but be ready to meet the monthly payment with your current budget.
Don’t Sign for Extras
Any extras will add to the cost of your loan, which means higher interest. If the dealer insists that it is obligatory to purchase some extras, like extended warranties or insurance add-ons, just walk away and don’t sign. You have a freedom of choice.
Bring a Friend
A dispassionate, but faithful friend can save you from reckless behavior, acting as your voice of reason when the dealer enforces you to accept the poor offer. Your friend will be your watchdog against scams as they commonly target buyers with bad credit.
Get a Cosigner, if One is Willing to Help You
Of course, this means your cosigner will be equally responsible for payments. Don’t take it lightly. Situations like these ruin families and friendships easily if something goes wrong. Consider to get a cosigner as a last resort.
In general, used car loan rates are higher
Beware of Scams
Unfortunately, buyers with bad credit are the main target of scams. Some most common examples include:
Yo-Yo Loans
That’s the case when the dealer lets you take the car in possession even though your financing is not final yet. Days or weeks later someone will call you to tell the unpleasant news – your financing fell through. Then you have to decide whether to take a less-favorable deal or loose the car, time, and money. You must refuse to take the car without seeing approval documents if you are relying on dealer financing instead of pre-approved financing.
Refusal to Accept Your Pre-Approved Financing
Much like the first case, it is the first sign of a scam. Likely, dealers will offer you their own financing at a much higher APR than the one you’ve secured. Don’t succumb! You may use the dealer’s loan instead of the one you’ve secured only if the terms of dealer’s loan are better, not worse. In other cases, it is better to find a more reliable dealer.
Reverse Straw Purchase
In some cases, you may be pressured to get a cosigner with great credit history for a much lower APR. Even if it is true in general, the pressure indicates that you may deal with the scam schemes. You will be thinking you co-signed on the loan, but officially there will be only the cosigner’s name instead. Be sure you are signing the same contract.
Used Cars Without Warranty
You see the car with an unbelievably low price, but there is no warranty. The dealer says everything will be fine, the car is in good condition, etc. In addition, they are happy to offer a nice auto loan with minimal APR. Don’t believe. Check the car’s title and history from CARFAX or a similar provider if you don’t want to goof up. And remember that used car loan rates are higher.
We hope this information will help you to get an auto loan with bad credit that is suitable for you.
