If your credit isn't in the best shape, you might have a difficult time finding a lender willing to extend you a loan.
The thought of getting a new or pre-owned car can be exciting.
But if your credit isn't in the best shape, you might have a difficult time finding a lender willing to grant you a car loan. Even if you do, if your credit isn't great, the rates might be so high that you can't make it happen financially.
The good news is that there are a few steps you can take to get approved for a car loan even if you're struggling with a bad credit score.
Be Aware of Your Credit Score
No one with bad credit wants to be reminded of their failures, but it's critical that you know your score before shopping around.
Once you've identified some of the things you can do to improve your score in the short term, you'll have an easier time getting approved for a loan.
If you're concerned about your score, you should read more on the things that lower your credit score the most.
Start Saving Right Away
If you're looking for a car loan with bad credit, you're likely to face a high interest rate, which can lead to paying thousands of more dollars, over time, than you were prepared for.
If you can make a larger down payment on the car at the time of purchase, you can reduce this expense. The more you pay in the short term, the less amount that will have interest accrue on it.
It might also mean that your loan provider will give you a lower interest rate for the larger size of a down payment on your car. The monthly payments will also be smaller and easier to manage in your bills.
You should also research how much your current vehicle is worth if you were to trade it in. That can be a helpful amount towards your next vehicle.
Educate Yourself on the Process
If you let the salesmen and bank attendants shape all the decisions, you will likely be taken advantage of. Do your research and become an educated consumer to minimize the chance you'll be talked into a loan or payment plan that disproportionately benefits the dealership.
Be sure to research car loan terms such as principal, maturity date, APR, amortization, default and other jargon the loan lender might try to talk you into.
The more you know ahead of these conversations, the better the decision that you'll make for you and your family's situation.
Get Preapproved for a Loan
Just because you don't have the best credit score doesn't mean you can't have some leverage walking into the door to buy a car.
In fact, you still have an opportunity to receive a loan that's in your budget and that holds you accountable for staying within that price range.
Start out by going online and receiving a few "ballpark" quotes for your car loan through websites of your local credit union, bank, or any other online lender that you trust.
If you have a relationship with a bank or loan lending company already, you should start your search there. You may be able to get a more favorable rate, in most cases.
Otherwise, make a list of banks or lending companies, and start comparison shopping. Services like LendingTree and RocketLoans will make this process easier by collecting your information once and having lenders bid for your business.
Make Sure Your Loan Terms Are Finalized
Talk is cheap – car dealers, banks, and online lenders will say anything under the sun to be able to convince you to sign their lease.
Remember, it's not reliable until you get it in writing, and even then, they may try to find different ways of amending any written contracts to add a few more dollars in the form of fees or charges which you should consider to be negotiable.
For example, your dealer might say they can get your monthly payment down from $360 to $300 – sounds like great news! But to make it work, they might not make it clear that they also extended the loan to a 72-month period, rather than a 60-month period, which means you're essentially paying the same total amount.
Unless the dealer is forthcoming about the extended term of the loan in this scenario, this is a strong signal that the dealer is negotiating in bad faith, and you should consider another dealership.
Be sure to ask for all the terms and offers they give you in writing, so that you can compare them with other offers you've received.
How to Get Approved for a Car Loan: Be Exhaustive
Now that you've seen how to get approved for a car loan with bad credit, be sure to read this article on the difference between credit unions and banks, to decide which one you'll want to visit for your loan needs.