Bad Credit Car Loans – What you need to know
If you have bad credit (in the 500s), don’t automatically assume you won’t qualify for a car loan. While you may have trouble getting an unsecured personal loan; since you’re offering collateral (the car), you may be able to qualify for a bad credit auto loan.
Too many people assume they are ineligible for a loan if they have a credit score of 550 or below, but they’re probably wrong. We help people with bad credit scores, no credit score or other credit troubles get approved for a car loan. If you want to find out what we can do for you please fill in the information above. We should be able to help you. If you’re interested in learning more about getting an auto loan with poor credit please read on below!
Getting a Car Loan with Bad Credit
“Bad credit” is a subjective term, not a hard and strict measure
The word “bad” is dependent on the person using the term. Loan officers with firm opinions and definitions of bad credit may disqualify you from getting a car loan, while some might approve you. This is particularly true if the loan officer or financing source works for or with the auto dealer closely. Remember, the primary goal of all auto dealers is to sell vehicles. You may be approved by a loan source with some different criteria than other lenders.
Never assume the worst. Obtain your credit report and score.
All borrowers are not created equal. Lenders may have different opinions of two borrowers with the same score when you apply for a car loan. If you’re unhappy with your credit score, work diligently to repair your report and score. There are many lenders who give out car loans to those with poor credit history. Look enough and you will find one.
Aim high, since you might qualify for a lower rate car loan, even with poor credit.
Always shop around ( This is why we rock, we help you find the best auto loans around), whether you have amazing or bad credit. When you have a high credit score, you might below prime interest rate. If you have bad credit, extensive shopping for car loans can result in a lower rate that won’t kill your bank account. If your credit score is “marginal,” you might even qualify for a prime auto loan interest rate.
Shop, shop, and shop some more.
As noted above, shop around to every place that might lend you money to buy a car. If you’re looking for a good used vehicle, there are numerous pre-owned auto dealers that offer “buy here, pay here” auto loans. Often, their vehicles come with extended warranties from 3rd parties.
You can shop from the comfort of your own home or office, since most auto lenders have a website offering their car loan rates. Even if they don’t publish their rates, you can call the dealer if their loan terms spark your curiosity. It helps to already know your credit score, so you can advise the person on the end of the phone. You can learn whether they have car loans for bad credit buyers from a quick conversation. Even if the loan officer cannot help you, this is valuable information since you don’t need to waste more time investigating the lender. Remember, “knowledge is power.”
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Begin your lender and loan terms search close to home.
Even if you’re pessimistic about getting a bank or credit union auto loan, check with your bank or credit union first. Don’t forget your employer or insurance company either, as they may offer auto loans for their employees. Also, check with your local auto club (AAA, or similar auto club) to learn if they offer loans for financing a car.
Check with sources specializing in auto loans, not sub-prime lenders.
Instead of initially contacting lenders that specialize in auto loans for bad credit borrowers, investigate lenders known for their auto loans. These lenders may have special loan programs for borrowers with low credit scores, since they specialize in vehicle loans and may have a better “feel” for low credit score borrowers. Sub-prime lenders should be you’re last resort, not first.
You’ll have more success if you apply with a friend or family member than trying to find financing as a “lone wolf,” (no pun intended).
Having a trusted partner with you accomplishes 2 goals: (1) you’ll have another set of eyes and ears to catch loan terms you otherwise may miss, and (2) you can use your partner to play a “role,” such as being critical of the loan terms being offered to motivate the lender to “sweeten” the terms. This rarely works, but we recommend trying it if you go meet a loan officer in person.
When shopping, look for loan terms, don’t focus on monthly payments.
Search for the lowest annual percentage rate (APR) that comes with the shortest payback period. Remember, if you think you can only afford the monthly payments by taking a longer-term auto loan, you’re probably thinking of buying more car than you can afford. You’ll benefit more – along with your credit score — with a lower APR and paying off the loan quicker and as agreed.
Be wary of add-ons and lending contracts that include goods and services you don’t need.
Since you’re a non-prime borrower, be careful of loan language that costs you more for unneeded services, which, because of your low credit score, you’re more likely to face in car financing offers. This covers many unnecessary terms, including monthly payment extras that increase your APR.
When you finance a car through a dealer, be sure the terms are final, so the interest rate or downpayment cannot increase. Do this BEFORE you sign any contract or drive away in your new car.
This is commonly called a “yo-yo” scam as it’s contingent on factors that can change after you agree to terms you can meet. Do not sign and execute contracts with these contingencies, as the probability is high that expensive changes will come before the “new car smell” fades. Sometimes, even the interest rate can increase after you’ve already agreed to the deal offered.
Seek and You Shall Find
When you need an auto loan – and you are burdened with a low credit score – the trick is knowing where to look. Depending on the condition of your credit score, you may be wasting your time looking for financing from national banks. But there are numerous auto lenders that look at factors other than just credit scores.
These lenders understand that anyone can become embroiled in some credit problems – often with issues not of their own creation, such as job loss – that makes these borrowers good credit risks for vehicle financing. These auto lenders usually believe everyone deserves a second chance to prove their creditworthiness.
Carefully Review Your Loan Contract
Once you find a lender or dealer willing to finance your new car, you must read your loan contract carefully. Since the lender knows you have poor credit, you should expect a much higher interest rate than you see on the TV auto advertisements. However, some lenders will take this opportunity to tack on “junk fees” and other over charges.
Remember, you’re already paying above market auto loan interest rates. The last thing you need are useless and expensive “add on” charges for unnecessary products or services. There is a good reason the common term for these unnecessary charges are “junk fees.”
Be sure you don’t sign a “contingency loan contract,” as mentioned previously. Since you already know you have poor credit, you must be wary of these contracts, since lenders can increase your down payment or change other loan terms after you reach agreement with an auto dealer. This contract language is much more common when non-prime borrowers get financing than with those borrowers with high credit scores (700+). Don’t let yourself get tricked. Always Google for reviews of companies before you get a loan or buy a car from them.
Ask your lender what the total finance charge will be over the life of the loan, after you learn what the APR is for your car loan. You’re better off not showing your displeasure at the annual percentage rate as a non-prime borrower. It will be rather high. However, if your APR approaches many credit card rates, you can certainly negotiate for a more reasonable and lower interest rate.
Your interest rate is a factor of your loan officer’s opinion or lender policy, which dictates interest rates for poor credit score borrowers. Much depends on the loan officer’s signature authority limit, but you can depend on him/her trying to get the highest interest rate possible with loans for bad credit borrowers. Be aware that the loan officer may have incentive dollars tied to the interest rates he/she can get from you.
Conclusion – How to get the best car loans
Getting a car loan when you have bad credit may be daunting, but it’s certainly possible. While you may not be too happy with the loan terms and interest rate, you might qualify for a decent ride. The keys to finding an affordable vehicle loan:
- Shop tirelessly for a lender that specializes in auto financing for car buyers with poor credit.
- Find a dealer that will “work with you” to finish the deal.
- Get a pre-approval for financing before you start car shopping seriously. Do your loan shopping first.
- Read the loan contract carefully, noting that it is free of costly add ons or contingencies.
- Take this opportunity to rebuild your credit score to its former glory. Be sure your lender reports to national credit bureaus. Making on time payments will add important points to your credit score.
Now that you have a car you should think about what type of car insurance you want. Like full coverage car insurance or comprehensive auto insurance. You can use our quotes tool to find cheap car insurance near me.