For most of us making our four-wheeled fantasy a reality depends on a loan. But who said that’s going to be easy? No, we don’t want an explanation for why your credit score is doomed (maybe it’s not that bad). We’re here with reliable solutions if you’ve spent days and weeks wondering how to get an auto loan with bad credit; or if you can even get one?
Yes, you can get a car loan with bad or no credit. However, there may be a few challenges. Deal with it like a weathered road. If you’re aware of the breakers and potholes, you can surely make it to the destination.
Why Do You Need A Good Credit Score?
A credit score is a numerical representation of how much the lenders can trust you with loan repayment. It is the direct and primary reflection of your financial reliability. This is only natural and necessary. When someone lends you a massive amount of money for your car purchase they will be concerned if you will pay off the loan.
Your credit score is determined based on several factors—whether you pay your bills on time, have enough savings, and how you spend your money. It’s not necessary to take out a loan to boost your credit score.
If you’re wondering what is a good credit score, the answer may vary across different financial organizations. Generally, as per the FICO credit scoring system, on a scale of 300 – 800, any score >580 is considered fair. Anything below that makes a bad credit score. The better your credit score, the less interest you pay.
But don’t worry, a bad credit score doesn’t mean you have no options. You can still look for bad credit auto loans. They may charge you higher interest rates, so you need to be careful with any further decisions you make.
How To Get An Auto Loan With Bad Credit?
You may have plenty of car loan options even with bad credit. However, you need to beware and take every step carefully. Bad credit auto loans often come with hefty interest rates and fluctuating loan terms, which may not be good for your financial health.
Here’s how to get approved for an auto loan with bad credit while keeping your finances intact.
1. Know Your Credit Score
Before you reach out to any lenders or banks for an auto loan, make sure to assess or reassess your credit score. Not knowing your own credit score would count for a few negative points. Additionally, a lot of lenders can use it as an opportunity to sign a loan with high interest rates and shady loan terms.
As said earlier, your FICO credit score is determined based on whether you pay your bills on time, if you spend a considerable portion of your monthly credit and the length of your credit history. You can easily check your credit score using Experian or other similar platforms.
Knowing your credit score will also give you an idea of the interest rates you can expect.
Increase Your Credit Scores and Get Your FICO Score For Free
2. Save Enough For A Down Payment
Besides credit score, down payment also has a significant impact on the annual percentage rate of interest (APR) you pay on a loan. Based on your purchasing preferences and the monthly payment you can afford, set a goal and start saving for your car’s down payment.
The more money you put down, the less you need to borrow. Considering the fact that you are looking for a car loan with bad credit, a bigger down payment will increase the chances of getting approved for the loan. Additionally, this way you can make easy monthly payments, leaving room for other financial goals.
Many lenders accept a down payment as low as $1000 however, based on the monthly payments you can manage, try to save as much as you can.
3. Research and Explore Your Options
If you’re completely new to the loan market, there’s a lot you may want to know before you sign a loan contract (or qualify for one). Research is crucial to make sure you attract and qualify for reasonable loan terms without getting bluffed into a scam.
There are plenty of sources to get an auto loan even with bad credit. But who wants to pay double the amount of a car’s price? Remember your car will start depreciating the moment you start driving. Fulfilling your car dream should not cost you more than a fair amount. Therefore, before making a final decision, explore all the loan options that are open for you.
4. Get Quotes From Lenders
There are many online lenders offering reliable bad credit auto loans. Reach out to the best ones and ask for quotes. This will give you an idea of what you can expect with other car financing sources.
Do not accept the very first offer out of desperation. At times lenders use your weak credit to their benefit offering loans with high interest rates, hidden charges, and uncertain loan terms. Instead of being in a hurry, wait around for more offers and compare them to see what’s best for you.
Once you have a few quotes from several online auto lenders, you can compare them and head over to explore other options.
Best Online Lenders To Get Bad Credit Auto Loans
| Online Lender | Reasons To Choose | Credit Score Requirement |
|---|---|---|
| ≥600 | |
| None | |
| ≥580 | |
| ≥550 | |
| ≥660 | |
| None |
5. Reach Out To Local Banks and Credit Unions
Banks and credit unions have fairly competitive auto loan offers. While you still need a high credit score to pay less interest, at least explore what your bank has to offer.
We suggest choosing a bank where you already have an account. For existing customers most banks provide reliable loan offers sometimes overlooking your credit status. They determine your creditworthiness based on your experience with them.
You can get a loan directly from a traditional bank or a credit union and take this pre-approval to the respective dealership. However, many banks offer loans only through dealerships so you may need to check for that.
6. Get Prequalified
Getting pre-qualified with lenders or a bank gives you an idea of loan estimates and what you can expect further. Not only this, prequalification also helps you dodge any unnecessary hard credit checks. This saves your time and keeps your credit score intact which otherwise can go even lower.
Once you get pre-approval from a few lenders you can easily compare the deals and loan terms to pick the best one. When you submit your documents there will still be a hard credit check but it won’t have much impact on your credit score because of the pre-approval weightage.
7. Dealership Offered Car Loans
Even if an online lender or bank does not pre-approve you for an auto loan, dealerships would arrange one for you. They are concerned about selling a car. However, your choice of dealership has a lot to do with whether it’s a good deal for you. Research well and pick the most reputable ones.
Car dealerships are connected to various banks and finance companies who can offer a loan. Several dealerships even have a special financing department that can help you get an auto loan with bad credit and low income.
Make sure you read and understand the loan terms well before signing any documents as a lot of dealers may charge hefty interest rates. Beware of the loan terms that might cost you a lot more.
8. Ask Someone To Become A Co-Signer
Having a co-signer is one of the ways you can boost the chances of getting approved for an auto loan with bad credit. A co-signer agrees to make the required payments if you default on the loan. This person should be someone who has a good credit score.
Who Can Become A Co-Signer For You?
- Some who has a steady income
- A clear credit history
- And, a strong credit score
You can consider a trustable friend or family member to become your co-signer. But remember if the loan becomes delinquent, it would negatively impact the co-signer’s credit score.
9. Loan Terms Are As Important As Monthly Payments
We get that you want easy monthly payments on your loan. However, make sure you pay attention to the loan terms as well. Lenders and dealerships often lure their customers into complicated loan terms and high interest rates hidden behind small monthly payments.
Bad credit auto loans already come with high APR. You don’t want to end up paying thousands of extra dollars just because you accept the extended terms of your loan. When looking for the most reliable loan terms, go with – a short loan period and lowest APR. Getting pre-approval for auto loans makes this easier for you. Before signing the documents, always confirm that the loan terms are final.
Tips For Secure Car Financing
We hope the above section gives you the necessary insight into how to get an auto loan with bad credit. But there are still a few things you need to be careful with.
1. Improve Your Credit Score
Even when you secure a car loan with bad credit, the lenders and the bank will be concerned about repayment (and you should be too). Making efforts to improve your credit score will make it possible to refinance your auto loan for better loan terms and lower interest rates in the future.
Manage your monthly payments well, reassess your existing debts and try to pay them off as and when possible. Build a clear credit history, start saving to indicate that you have financial backups that can be used to pay off the loan.
The Credit Sesame Credit Builder card lets you improve your credit score with every monthly payment you make for – gas, groceries, subscriptions and more. To know more, read our Credit Sesame Review.
2. Know Your Limit
Every car dealer you meet intends to sell one of the best cars to you irrespective of its price. However, before you step out for car purchase make sure you assess your needs, income, and loan repayment capacity to set a budget.
Do not miss out on the additional expenses that come along with the car – insurance, gas, registration fees, taxes, etc. Consider all this and then decide how much you can afford to pay every month against your monthly income.
Avoid getting caught up into your emotions or being intimidated by the offers presented by the sales personnel. Go for a vehicle you can actually afford rather than financing the one that you won’t be able to pay for.
3. Save More To Borrow Less
As said earlier, the down payment you make has a significant impact on the monthly payments and interest rates. It may be difficult to save a lot when managing bills and previous debts altogether. However, you must save a portion of the car’s price as down payment.
The more you put down as down payment, the less you’ll need to borrow and it’ll help to ease your loan terms. Making a suitable down payment indicates to the seller that you are serious about repaying the car loan.
4. Attain Personal Stability
Lenders pay attention to a lot of things other than your income and debt. They may enquire about where you work, how long you’ve been working with your current employer or how are your relations (financially) with your landlord and other people that most surround you.
They would want to know whether you have a steady source of income. Therefore, it’s important that you actively start working towards building financial stability.
5. The “Buy Here, Pay Here” Trap
Car dealerships offered loans are a good option if you fail to get approved for an auto loan elsewhere. However, that should be your last resort. While such car financing requires no hard credit checks, their interest rates are too high and loan terms often uncertain.
At times dealers make shady offers with hidden costs that make loan repayment difficult. If at all you choose to finance your car with a dealer, be careful and ensure you are paying only a reasonable amount for your car purchase.
It’s Okay To Postpone
We understand you may be eager and desperate to drive around in your own car. But getting a car loan and not being able to pay it off can bruise your credit score forever. In your desperation, do not settle for just any auto loan offered to you. Sometimes waiting a little longer proves to be rewarding.
You can wait for a few more months or years, looking for a reliable auto loan option. Meanwhile, save enough to make a fair down payment. It’s okay to spend a little more time preparing yourself for the big purchase you’re going to make. Who said there are deadlines anyways (unless you have a debt to repay)!
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FAQs
Can I even get an auto loan with bad credit?
Yes. It’s possible to get an auto loan even with bad credit. However, the interest rates for such loans are generally high.
Where can I get bad credit auto loans?
There are several sources that may offer you bad credit auto loans, specifically banks, car dealerships, online lenders, etc. You can explore all of these options to choose the one that offers reliable loan policies and affordable APR.
What should I consider when getting an auto loan with bad credit?
Firstly, make efforts to improve your credit score. While you can get enough loan offers even with a bad credit score, make sure to understand the loan terms well. Only sign documents for fixed loan terms. Always choose and offer where the APR is lowest and the loan duration is the shortest.
