How To Buy A Car With Bad Credit?
You can get a car loan even if you have bad credit, but it may cost you a lot. If you know what lenders look for, you can get a better rate on an auto loan even if you have bad credit.
Even with bad credit, you can usually still get a car loan.But you’ll probably pay more than someone with good credit because your interest rates and fees will be higher. When a person with bad credit applies for a car loan, the lender takes on more risk, so they charge more to make up for it.
How to get a car loan if you have bad credit
It may be harder to get a car loan, but you can improve your chances and maybe even lower the cost of the loan as a whole.Some auto lenders also use a FICO model that is specific to the auto business, but your basic credit report and score can tell you what kinds of loan offers you can expect. You can get your credit report and score for the low price of $1 through FreedomCreditBooster.com; just book a consultation to get straight to the point.
Once you have your credit report, look for ways to improve the information that lenders will use to decide if you qualify and at what rate. Are there mistakes you can fix, like accounts that show payments were late when they were actually on time? Do you have overdue accounts you could bring current? Do you have accounts with small balances that you can pay off?
Look at your credit history, credit health and score.
Know your credit score and where you stand before you try to get a car loan. The scores for FICO and VantageScore, the two most popular scoring models, run from 300 to 850. Tiers of credit are different for each scoring model, but in general, if your score is below the mid-600s, you will have to pay more, have fewer options, and be looked at more closely by lenders.
Prove that you can pay back the cash.
Creditors don’t just look at your credit score. They look for signs that you can pay back the loan on time and won’t stop making payments.
For instance, a lender will check to see if you have taken out and paid back car loans in the past. If that’s the case, that’s a big plus for you. A big bad is having your car taken away.
Be ready to show proof of the following things if a lender asks for them:
Ways to make money.
Have proof of your job and income, like a written pay stub that shows how much you’ve made so far this year if possible. For people with bad credit, lenders want to see that they have one steady source of income, like having a job for at least 6 months. Some people will look at child support, Social Security benefits, or disability payouts as extra income, but not as their only source of income. Most lenders want you to make at least $18,000 a year in gross income, but there are some who go lower or have no floor.
Debt-to-income ratio. Lenders will look at your debt-to-income ratio, which is your monthly debt payments split by your gross pay. If your DTI is above 45% to 50%, you may have trouble getting a loan. If your credit report says you have more debt than you actually do because you’ve paid off some accounts, be ready to show this.
Credit overuse. How much of your credit do you use if you already have loans and credit cards? Most of the time, lenders want borrowers to use less than 30% of their available credit. If it looks like you’re using your credit more, but you’ve recently paid down amounts, be ready to show proof of that.
History of payments. Your past of making payments on time is a big part of how lenders decide whether or not to give you a loan. This is especially true for auto loans. Be ready to explain why you were late with a payment and why it probably won’t happen again.
Payment to income ratio.This is another way to figure out if you can pay for a car payment and insurance at the same time. To figure out your PTI ratio, add up what you think your car loan and car insurance payments will be and divide that number by your gross monthly income. It should be under 20% if possible.
Having proof that you can pay for a car helps with more than just getting a loan. It can also help you get a loan with better terms and a lower rate.
Cut down on how much you need to borrow
When choosing whether or not to give you a car loan, the lender thinks about how much they could lose if you stopped making payments or wrecked the car. If you can borrow less and lower the amount you might lose, your chances of getting a loan may go up. Buying a less expensive car is one way to borrow less. Here are some other ways:
Put down some money. Some lenders will ask for a down payment, especially from people with bad credit. Even if they don’t, if you can, you should put some of your own money into the deal. A down payment not only reduces the amount you have to borrow, but it also shows the investor that you plan to pay back the loan.
You can trade in an old car. Take the time to look at Kelley Blue Book and Edmunds if you want to trade in a car. Be ready to talk to the dealer about what he or she will give you for your trade-in, which will leave you with less to pay for.
Have a cosigner
Someone with good credit who agrees to pay the loan back if you don’t is called a co-signer. They give lenders a safety net, which increases your chances of getting a loan. Some lenders will only give bad-credit car loans to people who have a cosigner.
A co-signer doesn’t own the car, but if you miss payments or stop making them, it could hurt their credit score.
Having a co-borrower could also help you get the loan. A co-borrower owns the car and is just as responsible for making payments as the main borrower.
Compare lenders to get a car loan with bad credit
Don’t take the first loan that someone gives you. Some lenders take advantage of people with bad credit who are desperate to buy a car by giving them loans with high interest rates, fees, and secret costs for services. If you don’t look at what different lenders have to offer, you won’t know if you could have gotten a better deal.
Visit your bank or credit union first, or read reviews online to find car lenders that don’t have a minimum credit score requirement or have a low one. Before you go to a store, do this. In the end, you’ll want to get pre-approved loan offers from more than one company.
Even a small difference in interest rates can have a big effect on how much you pay. At 9%, the payment on a used car that costs $25,000 and is paid off over 60 months is $518. At 14%, the payment is $581. The gap adds up to more than $3,700 over the life of the loan.
A car loan tool can help you compare how much each loan will cost you in total.
Ways to avoid paying more for a car loan if you have bad credit
If you have bad credit and can’t get a car loan or the rates are too high, you may want to wait to buy a car if you can. Use this time to improve your credit, pay off other bills, and save more money for a down payment on a car loan.
If you need a car right away and can’t wait to buy one, you may have to take out a loan with a high interest rate. In that case, make sure you pay your loan on time.
You can look into refinancing your car loan after you have paid on time for six to twelve months. Apply to more than one lender because they all have different requirements and one may be ready to refinance at a lower rate while another won’t. Best of luck to you on this journey!