Are There Auto Loans for People with Bad Credit?
Having a car or any kind of vehicle is a requirement for most people, especially if you have a family or a job that requires you to commute a long distance. While it’s completely possible to save enough money to buy a car outright, most people need to get an auto loan to pay for it. Most people believe that they need to have an excellent credit score to get an auto loan, when in fact there are lots of auto loans available for those with lower credit scores. Looking for and being approved for an auto loan when you have a low credit score can be a bit difficult but not impossible so don’t be discouraged from even trying.
Here are a few things you need to know if you’re looking for an auto loan and have a low credit score.
How to Look for Auto Loan When you Have Bad Credit
- The first thing you should do before you start looking for an auto loan is to check out your own financial situation more thoroughly. This means you should request a copy of your credit report. Having a good understanding of where you stand financially will make negotiation your auto loan much easier. If you think you have a low credit score but don’t know exactly what it is then you’ll be more likely to pay more for a car because you’ll believe it’s the best deal you can get. Don’t let car dealerships take advantage of you!
- Once you get your credit report you should look over it and double check that all of the information is actually correct, don’t simple trust that it’s right. It’s possible that a mistake could be making your credit score lower than it should be. Give yourself at least a month between when you request your credit report and when you want to start looking for a car, that way you’ll have plenty of time to fix any mistakes. Learn more about how credit report errors can affect your credit rating here.
- Now it’s time to start looking for an auto loan that best suits your needs.
- The most important thing you can do while shopping around for an auto loan is to set yourself a two week window and make sure you don’t go over the time limit. The reason for this is every time a dealership requests a copy of your credit report it shows up as an inquiry in your credit file. These inquires can and will hurt your credit score if there are too many of them. But if all your auto loan inquires occur within a short time period then they will only appear as one inquiry.
- Finally don’t accept any price or interest rate that you know is too high, because you have a low credit score it’s possible that your dealership will try and take advantage of you.
How to Save on your Auto Loan
Unfortunately if your credit score is low you’ll probably have to pay an above average interest rate. But, simple because your credit score is low doesn’t mean that you’ll have to bankrupt yourself trying to make auto loan payments. Here are a few tips to help you save some much needed cash on your auto loan.
- Go with a shorter term: You might be tempted to choose a 5 year term for your auto loan because you believe that you’ll need more time to pay it off, but what you should do is choose a 3 year term. Most of the time 3 year terms will come with lower interest rates and you’ll be saving on interest because you’ll be paying it off quicker.
- Consider a new vehicle: If you can, choose a new vehicle to buy as they usually come with a less expensive loan. Obviously this is not always an option for some as the interest rates for a new car might be lower but the price will definitely be higher. If you find a great deal on a used vehicle, weigh the pros and cons and don’t hesitate if it’s the best deal for your situation.
- Get the basic model: Your dealer will most definitely try to get you to buy all kinds of add-ons and extras for your car, explaining that you’ll only have to pay a few extra dollars each month. Don’t be fooled, if you’re trying to save money on your car then stick to your original plan. Those few extra dollars each month will start to add up and your payments might become too much for you to handle.
- Consider a private loan: Just because you have a low credit score doesn’t mean you need to get financing from a dealership. In fact you’ll probably be able to get a better deal from a private lender.
Auto Loan Traps to Avoid
Because your credit score is low your dealer might try and take advantage of you because they know that you’re more desperate to be approved than someone with a slightly higher credit score. Here are some auto loan traps that you should be aware of so that you can avoid them when shopping for an auto loan.
- Markups: The most common and probably most obvious of traps, loan markups. Your dealer will definitely profit from trying to get you to go for a more expensive loan, stick to your plan and don’t accept any offer that you can’t afford.
- Yo-Yo financing: This is when your dealer allows you to take home the vehicle you’ve chosen before you’ve been officially approved for a loan and then calls you back a few days later and explains that your loan application has been rejected. They’ve now trapped you in with a new price and a new interest rate knowing that you’ll most likely pay whatever they ask you to.
- Loan packing: When your dealer tries to force you to pay a high price for your vehicle by adding on extra costs without telling you. They will offer you a higher price in hopes that you won’t realize what they are doing and pay it anyway.
- “Buy here, pay here”: These types of dealers will offer you a loan no matter what your credit history or score is. While this might seem like exactly what you need, there are some cons that can end up costing you. Not all “buy here, pay here” dealerships are bad but you should do your research and know what kind of interest rate you can qualify for a head of time as they might try and scam you with a incredibly high one.
Auto Loans are not reserved for those who have high credit scores. Your low credit score shouldn’t discourage you from looking for a new car and a loan to pay for it. Make sure you follow our steps and keep yourself informed about your own financial situation and you should be able to get the car you want and need.