Anytime you’re taking out an auto loan, you want to get the best deal possible. That starts with getting an auto loan that doesn’t have a huge interest rate.
You know that you need a car, but you also don’t want to pay a lot in interest either. If you have bad credit, that doesn’t mean that you can’t get an auto loan at all. More people with bad credit are getting car loans.
Would you like to know how to get a car with bad credit? Keep reading to find out.
1. New vs. Used Car
When you’re getting a new car, you’re going to debate whether or not it makes sense to get a new car or a used car.
There are pros and cons to each. For example, a new car might give you peace of mind because it hasn’t ben driven. You are also sure about the car’s history.
Used cars cost less to own and operate. You may want to have a used car for that reason alone. Not only that, cars are made better and last longer.
A car’s average lifespan is more than 11 years. If you get a car that’s only a few years old, you won’t have to eat the depreciation costs and you’ll have a reliable car for years to come.
If you have bad credit a used car could help you secure a loan because you’re asking lenders for less money. That’s less risk on their part and they will be more willing to lend you money.
2. Check Your Credit Score
You want to know where you stand before you start shopping for auto loans. Be sure to pull your credit report and know your credit score.
This will prepare you for the types of loans and interest rates you can get. You can also see where the opportunities are to improve your credit score. You may see mistakes on your credit report that can be removed.
3. Save Up for Down Payment
Saving up for a big down payment on a car means that you’ll have to take out less for the auto loan. The less money you need, the more options you have for financing your car purchase.
If you have trouble saving up for a down payment, you can use a trade-in to help you lower the cost of the car. You do have to be careful with trade-in offers, though.
Some shady car dealers will offer way less for your car than what it’s worth. You want to use the Kelly Blue Book and have a mechanic look at to get a ballpark estimate.
4. Shop for the Right Car
How to get a car with bad credit often starts with the car you want to purchase. When you’re financing a car, lenders will offer you extended terms on the loan. For example, you can pay the car loan off over 5 or 6 years.
You want to make sure that the car you purchase will last that long. You also want to make sure that you look at the total cost of the car purchase.
You may have a low monthly payment and extended loan terms. When you look at the total cost of the purchase, you realize that you’re paying a ton of money in interest.
5. Pay Down Other Debts
One of the big factors in your credit score compared how much credit you have against how much you actually use. This ratio is called a credit utilization rate.
You generally want to have your utilization rate below 30%. If you’re close to maxing out the credit that you have available, your credit score will be lower. That will make it more challenging to get a loan with bad credit.
If you can lower the amount you owe by paying off your debts, you’ll increase your chances of getting a loan for your car.
6. Get Pre-Approved
If you want the best deal on a car purchase, a pre-approval letter from a lender can give you a big advantage.
Car dealers consider buyers with these letters just as valuable as buyers who are paying all cash for a car. This will give you plenty of room to negotiate and lower the purchase price of the loan.
7. Shop with Different Lenders
When you go to an auto dealer to buy a car, they offer financing options with that purchase. They will ask for your financial information and send it off to their preferred lender.
The lender will come back with an offer on the loan. They’ll spell out the interest rate, the terms of the loan, and the monthly payment.
You can fully expect the dealer to add a small percentage onto the interest rate as well. They’re a middleman in this situation, but this can be quite a profit center for many dealers. Dealers can make at least $1,600 from your car purchase.
Instead of going through dealer financing, you want to shop around for loans with bad credit. This Bonsai Finance article gives you the inside scoop of bad credit loans.
How to Get a Car with Bad Credit
Let’s face it, to have any sort of quality of life, you need a car that you can rely on. The only way you can really do that is to finance a car. Otherwise, you’re paying a few hundred bucks for a beat-up car that will turn into a money pit of repairs.
It is possible to get a car regardless of your credit score. Learning how to get a car with bad credit will take a little bit of research. You want to make sure that you clean up your credit score as much as possible.
You also want to shop around and negotiate a better interest rate. That can save you money of the terms of the loan.
Ready for more auto tips? Check out the auto maintenance section of the blog to learn how you can make your next car last longer.