Having a low credit score can severely impact your ability to buy a car. Car dealerships tend to raise interest rates for buyers with low credit scores because these buyers prove to be a higher risk than those who have good credit. When you have bad credit, it’s essential to reach out to a respectable bank or lender to see what your options are for financing your auto loan instead of automatically accepting a high-interest rate. These seven steps will help ensure you get the best possible loan for your vehicle.
1. How Bad Do You Need A Car?
If you are in a city where public transportation is an option, it might be cheaper to use that instead of buying a vehicle as a luxury item. Before you start shopping for your car as well as an auto loan try seeing if there is another solution such as keeping your current vehicle, carpooling, or taking a train or bus while you’re working on rebuilding your credit. When you absolutely must buy a car with bad credit then prepare yourself for a high-interest loan. If your credit is high because of your payment history, later try to start paying your bills on time. Even a few months of timely payments can boost your credit score. Try pushing off buying a car for a few months so you can work on increasing your credit enough to make a difference in your interest rates.
2. Check Your Credit Score
The finance guys at Easterns (DC, Maryland, Virginia) recommend going to one of those free credit report websites to check your credit report regularly. Check for yourself what your score is, what is negatively affecting your score, and if there is suspicious activity. Take your credit report with you when going to meet potential lenders, so you are on the same page when discussing your finances.
3. Look Around
Don’t just buy the first loan available. Research rates that various lenders charge, so you don’t get taken for a ride. Try looking up a lender’s auto lending rate sheet, so you will know what the current rates are for both new and used vehicles based on your credit score. Bring this information with you when you go to meet the lender.
4. Stay Within a Two-Week Time Frame
Lenders will always check your credit score when you apply for an auto loan, and each check can have an impact on your score. The good news is that every credit inquiry performed by an auto lender within two weeks shows up as just one inquiry. It is vital that you only apply for auto loans when you are ready to take one out. Otherwise, things could get a whole lot worse.
5. Get a Shorter Loan Duration
You might be able to lower your monthly payments with a five-year loan as opposed to a three-year loan, but make sure that you pay attention to the interest rate. Interest rates tend to be smaller for shorter-term loans, and you’ll end up with a few left-over years where you won’t be making car payments. That way, you can focus on paying off other things to raise your credit score.
6. Look for New Vehicles
Though you might think an older vehicle might cost less, the fact of the matter is older vehicles charge higher interest rates than newer ones. It’s possible to find a better deal on an older used car, so make sure you check all your options before deciding. You may find an older vehicle you can buy with cash, eliminating your need to get a loan in the first place.
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7. Get A Co-signer
Having a co-signer for your loan might be your best option in getting a loan at a reasonable rate. The problem is your co-signer will be responsible for making the payments if you are unable to so this may only be an option if you can make your payments in full and on time. If you can do so, having a co-signer can boost your credit score.
Admittedly it can be challenging to obtain a loan of you have bad credit. The best advice we can give is to make sure you keep your chin up and don’t get discouraged if a door or two slams in your face. Doing that and sticking to these steps will make it easier when it comes to getting a car loan.