by Jim Thompson |
Last Updated: January 11, 2021 If you have less than stellar credit, the act of getting a car loan may be much more difficult although not necessarily impossible. As in any situation, “bad” is in the eye of the beholder. You may still be able to get approved for an auto loan if a lender decides you are worth the risk despite your bad credit score.
Check Your Facts and Figures
Some people assume that their credit score is worse than it really is. You can check your score for free once a year. Make sure to get a full credit report as mistakes on the report can have a negative effect on your score.
Even if your score is low, it doesn’t mean you are out of the running. The same lender who denied your home loan may still approve a car loan. After all, cars are cheaper and the repayment period shorter than with a home and therefore may be an acceptable risk for the lender. After all, if you don’t pay, it is much easier to repossess a car than a house.
Do Your Homework
Shop around for a loan before shopping for the car. There are a variety of lenders from banks to credit unions to online brokerages that offer car loans. Be sure to check as many as you can and be wary of lenders who claim to cater to people with bad credit. Chances are they will offer loans at a higher interest rate under the guise of doing a favor for the individual applying for the loan.
Start your search for an auto loan close to home. If you have an institution where you do your banking business already, consult them first. They know you there and, as a customer, they may be willing to work with you more than another lender would. If your bank does extend an offer, don’t necessarily take it right away. Just as with anything else, it is important that you secure the best price for a loan just like you will for the car.
Don’t Be The Lone Ranger When it Comes to Loans
It never hurts to take someone with you as you go shopping for a loan. One, it gives you an extra set of eyes to make sure that you are clear on the terms and conditions of the agreement. It may also be profitable to make it a bit of a game. Your plus one might help in the negotiation if they act unimpressed with the offer or are critical of the loan terms. Hey, even the Lone Ranger had Tonto to help keep him out of bad situations.
A Lower Payment Doesn’t Necessarily Mean a Better Deal
Many lenders will try to sell you on the idea that low payments should be your biggest consideration. For a lender to offer a low payment, it usually means that the repayment period will be extended. There are two ways an extended payment period can hurt you. First, because of the number of payments, you will be making you will be forced to pay more interest. Secondly, the longer the term, the greater the chance that you will be “upside down” on the loan. Being upside down means that before you finish paying the note, the car will be worth less than what you owe.