How To Get A Car Loan Even If You Have Bad Credit
New cars, and even some used cars, are so expensive these days that many people are not able to save up and pay cash for them. So they have to take out a loan in order to buy a car. And when you have bad credit, it can be harder to get a loan. Loans to people with bad credit are called “subprime” loans, and they are not impossible to obtain, as you will see if you follow these simple steps.
- The first thing you should do, before you apply for a loan anywhere, is check your credit report and find out exactly how bad your credit is. You might be surprised, if you have not done this already, because it might not be as bad as you imagine it is. You can get a free credit report once a year from each of the three big credit reporting agencies.
- Once you have your credit report, you should examine it carefully to see if there are any errors. Credit reports do sometimes contain errors. On your report, you might find accounts that are not yours, or accounts listed as delinquent which are actually paid. If you have any errors, you should dispute them with the agency which is reporting them. The agency will have to contact the lender, and it will be the lender’s obligation to confirm that it is not an error, or the agency will have to remove it from your report.
- In addition to your report, you will need to obtain your credit score. The most commonly used score is called the FICO score, and you can obtain it for a small fee. You will also need to know where your score falls in relation to what are considered “good” and “great” scores, so you can understand how a lender will view your loan application.
Now you can shop around for the best rate. And keep in mind the following while you are applying to different lenders:
- After you have verified your credit report and score, it’s time to consider your down payment. Lenders have found that the larger your down payment, the less likely you are to stop paying on your vehicle and allow it to be repossessed. So they look more favorably on an application that includes a large down payment in relation to the cost of the car. Make yours as large as possible.
- Lenders are also more likely to lend for a car than a house to someone with bad credit. Cars are easier to repossess, if necessary, than houses and far easier to re-sell, so there is less risk for a lender making an auto loan than one making a mortgage.
- All credit scores are not the same. If you had a bankruptcy many years ago but have been faithfully paying your bills on time since then, your chances may be better than someone with the same score as you who has been delinquent recently.
It’s possible to get an auto loan, even if you have bad credit. You may have to search around, and you most definitely will pay a higher interest rate than someone with great credit, but you can get the best deal possible if you follow these steps.