Got Bad Credit? You Can Still Secure a Car Loan
If your credit score is lower than 600 (which may considered bad credit) you can still be approved for a car loan. Granted, it will be challenging, but there are certainly options available. We have detailed how consumers with poor credit can get their hands on an auto loan.
Conduct Thorough Research
Before you start searching for a lender, review your financial situation. Go over your credit history, and come up with an appropriate budget based on your needs. The Consumer Financial Protection Bureau (CFPB) claims those who understand their finances will be in much better shape to shop for a new vehicle.
Find a Dealer Who Will Work with You
Are you worried your credit score will hurt your chances of being approved for an auto loan? Don’t sweat it. In fact, the best thing you can do is to be completely transparent about your credit and general finances. If you are planning to purchase a car through a dealer, simply find a place that is willing to approve you for a loan. Depending on your credit score and history, you will likely have several lending institutions from which to choose.
And if that falls through, you can always secure your loan through a bank. Even with a poor credit score, many car dealers have sound relationships with banks, and they may very well be able to pull in a favor for you.
Assess Your Monthly Cash Flow
Why would a lender approve you for a car loan if you have poor credit? The truth of the matter is that car dealers are eager to make a sale, and most are willing to work with you. Consider your monthly cash flow, and share those numbers with the finance department. The average length of an auto loan is 67 months, but by increasing the duration to 72 or even 84 months, the lender can lower your monthly payments while increasing the total amount you end up paying for the car.
This is a win-win situation on paper, but you must still be willing to make payments over seven years. Be realistic about your financial situation, and about the implications of purchasing a new car.
Keep the Following in Mind
Be realistic about the circumstances surrounding your loan. If you have poor credit, it will be more challenging to find a lender than it would be if you had good credit. Moreover, when you do find a lender willing to offer you an auto loan, the interest rate will be higher—usually around 14.4% for scores between 550 and 619, or about 17.9% for scores under 549. The higher your down payment, the less interest you will pay overall. This might mean you will need to purchase a cheaper car.
Worst-case scenario, remember that cars are easy to value, repossess, and resell. This is why most consumers with poor credit can still be approved for an auto loan. Just keep in mind that until your car note is paid in full, the vehicle is not your property. It belongs to the lender, and they can repossess the car if you fail to meet the terms of the loan. While banks would prefer not to repossess your car, they too have the right to do so if you don’t meet your lender’s terms.
In short, most people with poor credit can still secure a car loan. Simply acknowledge that your terms will be much better if you wait until you’ve repaired your credit.