How to Get Auto Financing for Bad Credit
If you have a bad credit score, you may be worried about finding a car loan with good terms. Getting auto financing for bad credit can be tricky, but it can be done. Making consistent payments toward your car loan is actually a good way to work on fixing your credit. There are certain things you must know and can do in order to get financing.
Know Your Credit Score: Before you start the process of finding financing, it’s good to know your credit score. You can find free credit reports and be able to learn more about the different factors that are impacting your score. There are certain things you can address immediately, such as making any delinquent payments. By working on repairing your credit score before you begin shopping, this can help you be in a better position with lenders. It’s also good to check your credit report to make sure there aren’t any errors and get problems fixed right away.
Do Your Research: You want to prepare as much as possible so you are in a good position to negotiate when the time comes. You should research things like key terms, such as the annual percentage rate. If you are buying a used car, then know the Kelley Blue Book value for the car you are interested in buying.
Shop Around: When you begin the shopping process, it’s best to not limit yourself to one lender. There will be a variety of different lenders for auto financing for bad credit. Lenders will run a hard credit check during the application process, which can lower your credit score temporarily, so don’t draw out this process.
Pre-Qualify with Credit Unions and Banks: Even if you don’t think you will qualify for a loan, check with a credit union or bank first. If it’s possible, pre-qualifying can give you the most negotiating power. Banks can be more restrictive when it comes to lending, but credit unions may be a good option for pre-approval.
Avoid Using Subprime Lenders: These lenders are a sure thing for getting a car loan, even with bad credit. However, these loans can come with very high interest rates and some even use your vehicle as collateral. If you don’t make the payments, you risk losing your car. Be sure to do your research to avoid subprime lenders.
Shop the Loan Terms, Not Just Monthly Payments: While a lower monthly payment looks good on paper, it’s better to do your research with the loan terms as well. Since car loans for bad credit can come with a higher interest rate, you can end up paying more than the full value of the car even if your monthly payment is lower.
Look Out for Scams: Don’t allow a loan to be dependent on purchasing any adds-ons, such as aftermarket services or insurance.