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4 Ways to Get a Car Loan with Bad Credit

4 Ways to Get a Car Loan with Bad Credit

Bad credit doesn’t have to hold you back from buying a car, or getting a loan you can afford. Remember that “bad” is subjective. If your credit score is borderline, some lenders will still view you as a good prospect when others turn you away.

It’s also important to remember that you’re not alone, as about 25% of people in the U.S. have poor credit, yet thousands manage to obtain car loans every day. The following methods can get you into a car with a payment you can handle.

 

1. Check your credit report and scores

One of the best ways to get a car loan with bad credit is beginning the process armed with knowledge. Before applying, order copies of your credit report and check for mistakes that could be harming your credit. This includes accounts that don’t belong to you, judgments or liens that aren’t yours and late payments on accounts you know were paid on time. Starting here can save you a lot of trouble and money, and it’s possible you can improve your credit score by spotting mistakes.

It’s also important to know your credit score before applying. You can use your score to find out from potential lenders if you are close to qualifying for a better rate. In this case, you’re better off applying for a car loan in a couple of months. You may be close enough that a little work on your end — such as paying down credit cards — will mean the difference between approval and rejection.

Keep in mind most dealers will work with you if your credit score is at least 600.

 

2. Get a co-signer

If you have a relative or a very good friend with excellent credit, you can ask them to co-sign on the loan. Even with bad credit, you stand a very good chance of driving off in your new car with a good co-signer. Just remember the person who co-signs will be risking their own credit on your car loan. If you don’t pay, they will be 100% responsible for the loan. This is no small thing to ask of someone.

 

3. Turn to “Bad Credit” Dealers

Search for dealerships that specialize in helping consumers with bad credit get a loan, especially those that advertise working with people in situations like yours. For example, if you went through bankruptcy a year ago, look for a dealership that advertises it works with consumers after bankruptcy.

The next step here is important!

Email the dealership first, asking about their average down payment and bad credit interest rates, specifying you want the worst-case scenario. You should also ask about the payment terms. It’s better to find out this information before you visit the dealership, as most dealers are experts at talking people into cars they can’t afford. Emailing them before the visit gives you a chance to see if it fits into your budget and decide what you can afford before they even pull your credit.

At the same time, don’t forget that dealerships specializing in subprime (or bad credit) lending usually have very high interest rates. Don’t be afraid to compare lenders and see what you qualify for.

 

4. Consider private party auto loans

Another option if you’re turned down by a dealership is something called a private party auto loan, or a person-to-person car loan. If you go this route, you can find lenders online — but make sure you compare lenders to get the best interest rate and most favorable terms.

There are two ways to go about person-to-person loans: buying a used car from an individual who gives you financing, or monthly payments, or buying a car from a dealership and using a private third-party who lends you the money. Either way, you can usually find more favorable terms when you go this route.

If you’re shopping for a new or used car and you know your credit could use some work, don’t give up! It’s actually easier to qualify for a car loan than you think, as the loan amounts tend to be fairly low and for a short amount of time. In the worst-case scenario, you’ll just have to put off buying a car until you work on your credit. With dedication, you can get your score into a more acceptable range within 6 months.

About Christine Smith

Christine Smith is an editor and freelance writer. She covers real estate and business news for US Money Ledger.

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