Bad credit doesn’t have to mean you can’t get an auto loan or have to get one with terrible terms. If you’re heading into the process, do everything you can to begin learning and improving your credit score. Educate yourself throughout the process, be your own advocate, and you’re one step closer to that loan! Below you will find the best auto loans available in 2019!
How to Get an Auto Loan with Bad Credit?
Credit is one of those things that seems impossible – you have to have it in order to build it, and if you don’t then you’re just out of luck. Yet, how does this work when you simply need to make a purchase and credit is required to do so? Take the car industry for instance.
Approximately 222 million in the United States are licensed and about 68 million in the United States have bad credit scores. If all those individuals were unable to purchase a car, new or used, because of their poor credit, then we’d have far fewer drivers on the road.
The people with bad credit aren’t paying with cash, and you don’t have to either if you fall into this category. Rather, they are following a few steps that can help them get a ride with poor credit, and you can too!
- Get cozy with your credit score. Find a place (some online banking sites even provide the service now) that offers a free credit report and understand the factor behind your score. If there are any quick fixes, TAKE ACTION. Repairing your credit score might take a little bit of work but working on your credit could make all the difference.
- Try for pre-approval. This might be tough with bad credit, but it’s always worth a shot with a bank that knows you. Go online to check out the pre-approval options at the bank or credit union that you already use. The relationship that you’ve already built with the bank or credit union will work in your favor, even if you have bad credit. If they’re familiar with you as a customer, they’re more likely to work with you because of your previous history.
- Do your research. This involves a variety of factors. Above all, you want to make sure you’re borrowing from a legitimate lender. Subprime lenders appeal to individuals with poor credit because they make the process seem easy, yet they come with high-interest rates and won’t help you improve that credit score which is why you’re in this spot in the first place. Don’t commit to a loan too early. Do a little—and by little, do a lot—of shopping in the same period of time (to avoid hurting your credit score) and be thoughtful. You want to ensure you look at auto loan terms instead of monthly payments so you’re not paying more for the car than it is actually worth and confirm the terms of the agreement are final—that’s just good practice.
- Consider a consigner. Depending on your age, personality, financial situation, etc. a cosigner can either be a great move or a terrible idea. A cosigner signs the terms of the car loan as well and becomes responsible for the payments if you default on it. Although having one can be a strong negotiating tool in your favor, you want to make sure it is someone you trust and won’t corner into debt because that can be a quick way to ruin any relationship.
How to Find the Best Car Loan Rates?
Getting a low price on your next car should be the goal, but it’s a rookie mistake not to keep an eye on the loan itself. Auto loans can make or break how much you actually pay for your vehicle. Follow the guidelines below to ensure you’re getting a great deal!
Shop to get the best deal, but shop in a short amount of time
Credit scores are a big factor in applying for a loan and applying for loans count as a “hard inquiry” on your credit score. This means that the inquiry will make your credit score go down because the credit bureau knows that your score is being looked at. This will happen regardless of if you are approved for the auto loan, if you utilize the loan, or how often you apply. This means you’ll want to limit both the number of times you perform hard inquiries on your credit and the period of time in which you shop so that your credit score doesn’t take too much of a hit. You want to make sure you get the best deal, but since your credit score is one of the factors that enables you do that, you want to be mindful of keeping it up at the same time.
Focus on the total cost of the loan
Monthly payments can actually end up ripping you off in the long-term. While a small monthly payment may seem desirable when you are discussing it with the lender, borrowing money over a longer period of time can extend the number of months you’re paying along with the overall amount with interest. Your primary focus when shopping for your loan should be the total cost of the loan, not what you’ll be paying each month.
Keep the loan and the car separate
One of the ways to give yourself some leverage is to attempt to prequalify for a loan. This allows you to head to the dealer with a “blank check” in hand. If the dealer isn’t able to offer a better deal than the one your prequalified loan already offers, you know you have a better option. Feeling as though you have options is a great way to make sure you get a good deal, and a top reason to keep the loan separate from the car.
Contingent? Conditional? No deal.
Financing on a car should NEVER be conditional or contingent. If this phrasing is used, hold off on grabbing those keys. Your terms should be finalized before you walk out the door. Otherwise, you’re at risk of getting stuck with terms the dealer draws up at their whim, which can be risky. Say “no deal” to any car dealer with “conditional” or “contingent’ in their loan contract.
Getting the best rate on a car loan simply requires knowing what to look for and when to walk away. Don’t commit too soon or when a monthly payment seems too good to be true, and make sure the terms are final before you get the keys. These hacks will help you get a good deal every time.