The best way to get a car loan when you have bad credit is with a down payment and a strong cosigner. Although it may seem difficult to find a bad credit car loan, many lenders are willing to work with borrowers with damaged or poor credit. However, what’s challenging is finding an affordable rate and staying away from any scams. Luckily for you, we’ve come up with a series of steps that, if you follow, will help increase your chances of getting approved for an auto loan with a decent rate and terms.
- Examine Your Credit
If you have a bad credit score, the first thing you need to do is look at your credit history. There may be an error that’s bringing down your score. If there is a mistake, you’ll need to write to the credit bureaus that show the error as well as the financial institution that gave the incorrect report. Make sure you keep copies of the correspondence you send. By law, once a credit reporting agency receives a dispute, they have to investigate it and report back to you within 30 days. If you’re unsatisfied with the investigation, you can write a complaint to the Consumer Financial Protection Bureau.
If there is no error and your credit score and you don’t need a car immediately, the best thing to do is to work on improving your score before applying for a new loan. This may help you to get better terms and a lower interest rate. To improve your score, you should make sure you pay all your bills on time and do whatever you can to reduce your debt.
- Look into Different Auto Lenders
If you’re having trouble getting loan approval from a conventional lender, you should look into lenders that focus entirely on serving people with lower credit scores. These lenders usually offer loans at higher interest rates, but they are willing to work with people with poor credit scores who need a car.
To find auto lenders who might work with you, you should look into lenders that offer online loans in Canada and dealerships that work with people who have bad credit.
- Have Enough Money For a Down Payment
If you can put money towards your car’s down payment, you should be able to decrease your monthly payment amounts, get a better interest rate, or decrease the length of your loan. Even with bad credit, a lender will consider the fact that you have money in-hand when considering the risk of giving you a loan.
- Understand What You Can Afford
The last thing you want to do if you have bad credit is add a car loan payment you can’t afford to keep up with. Therefore you need to make sure you understand what monthly loan payment you can afford. You should only consider cars in your price range. Additionally, you need to research the current average car loan interest rates, so when it comes time to negotiate, you know what your options are. Researching current rates online is easy and a great way to understand the current terms and interest rates that may be available to you.
- Consider Using a Cosigner
Having someone with good credit cosign your car loan may improve your chances of getting a car loan at a reasonable interest rate. When someone consigns a loan application with you, they tell the lender that they will pay your debt if you don’t. This is reassuring to the lender because it means they have someone to go to if you default on the loan, and therefore there is less risk involved, so you’re more likely to be approved.
Getting a good car loan when you have bad credit can be challenging. Therefore the first thing you want to do is make sure that your bad credit score is not a result of an error. If there is no error and you need a car right away, you will want to look into different auto lenders to find those willing to work with you and offer you a decent rate and term. You’ll also want to make sure you have enough money for a down payment and that you’re looking at buying a car whose payments you can comfortably afford. Lastly, having someone consign your auto loan will increase your odds of getting a lender to give you a good rate and term if all else fails.