When you have bad credit, it does not mean you can’t buy a car. This also doesn’t mean that you can’t get a car loan with the proper terms and conditions that won’t break your bank. Always remember to shop around and continue to be on the lookout for the right vehicle for you. Although brokers and automotive lenders tend to charge higher interest rates to individuals with less than ideal credit scores, remember to not take the first-rate that is presented to you. There are several strategies to utilize when searching for an auto loan, we will go through a few of them as we continue.
Some people are under the impression that a significant down payment along with a cosigner with great credit are the best ways to get a car loan when it comes to having bad credit. Though it may appear challenging to get a bad credit car loan or financing, there are many brokers and lenders in the market that are willing to work with borrowers who have bad or damaged credit. The initial challenge is looking for an affordable rate while avoiding scams and surcharges that come along the way. If you follow these steps, you will increase your chances of getting approved for the right automotive loan with the rate and terms that suit and satisfy you most.
There are several steps and ways one person can take to getting a car with a bad credit score. A person could go straight to the dealership and apply for a loan, but there would be increased rate charges, higher standards and you will not get the most affordable loan that they could. An easy way to take the mystery out of the equation is to check your credit so you know exactly what your score is. Check your credit for free today at AnnualCreditReport.com to make sure that there are no errors or mistakes when it comes to your credit score history. Negative or incorrect information on your credit report can affect your credit score. When you know your score, you will have a general idea of the APR rate you may receive when trying to purchase a car, truck, or SUV. While there is no set minimum credit score when it comes to buying a car, the rule of thumb is that: the higher the credit score, the lower the automotive loan rate.
Budget
Cars are a very expensive modern marvel of machinery. Americans with the lowest credit scores borrow, on average, $15, 845 for a used vehicle and around $27, 867 for new ones. It is vital to make sure that the vehicle you are selecting is affordable to you. You could use the 20/4/10 rule as a standard when it comes to your car-buying budget. Use 20% for a down payment, have the vehicle finances for no more than 4 years, and keep the transportation cost under 10% of your income. Your vehicle ownership costs will vary, but you would use tools like the car affordability calendar in order to see what could and could not fit in your budget. Are you in need of a professional opinion? The National Foundation for Credit Counseling offers free and low-cost counseling to those who are looking for this type of service.
Cosigner
Though it is possible to find a car with bad credit with limited or zero down payment, down payments can: increase the chances that a lender will make a loan offer, help lower your APR rate and prevent your car loan from going underwater. A traditional, classic recommendation is to put down 20% of the car’s initial price. How much you put down today is conventionally up to you. But, if you are having trouble getting approved for a car loan or are having issues finding the terms and rate you are looking for, a cosigner may help. The downside to having a cosigner is that they would be risking their own credit and other additional fees should you default on the loan.
Research & Get Approved
Prospective brokers may include your own personal bank, credit unions or online lenders. There are numerous subprime auto loan companies that have worked with many bad credit individuals and helped them get the vehicles and deals they were seeking. Some of these automotive lenders and brokers are Capital One, RoadLoans, and Carvana just to name a few. On average, the typical APR for a subprime loan borrower ranges from 12.5% to 19.5%, which is lower than other dealerships where subprime loans can top over 20%. The average starting amount figures to be over $4,000 and the general term limits for these loans are between 36 - 72 months. Whomever you choose to work with regarding your bad credit car purchasing process, make sure to apply for a preapproval, and preferably, more than once before going to a dealership. Dealers and dealerships have a tendency to raise a customer’s interest rates. Therefore, the best way to go about getting your car is to cut out the middleman and apply directly with a broker or lender.
Close To Home
Even if you think that you can not get an automotive loan, stop by a nearby automotive dealership and apply first. Also, check-in with your bank or financial institution to see what kind of rates and discounts they can offer you when it comes to purchasing or financing a vehicle with bad credit. Some employers and insurance companies offer automotive financing as well. Most of the time, your bank or other finance companies can offer great deals on automotive loans, terms, and rates.
Due to the shorter terms and less money that is involved, an automotive loan is easier to approve and finance than a home loan. It all depends on what you can afford and what you are willing to budget.