If you have bad credit due to problems you’ve had in the past, you can still purchase a car and get it financed. There are many lenders who will provide auto loans to people with bad credit. However, you have to be careful when seeking a loan with a low credit rating to avoid repeating past mistakes. It’s also important to be aware of the scams that are targeted at people with bad credit, and take precautions to avoid disreputable auto loan lenders. When you borrow money with bad credit, you will pay higher interest rates, but there’s no reason why you should let a lender take advantage of you.
Making a Budget
Before you can start looking for an auto loan, you’ll need to know how much you can afford to pay for a monthly payment. Add up your income, then subtract your monthly expenses. Be sure to make allowances to unexpected expenses. Then use an online auto loan calculator to determine how much money you can afford to borrow. The monthly payments for your bad credit auto loan should be less than the extra income you calculated in your budget. Get current on all of your bills and save up some money to make a down-payment on your new car.
Call your bank, credit union or go online to get pre-approved for an auto loan for bad credit. Keep in mind that you will need a steady income and a reasonable debt-to-income ratio to qualify. Getting pre-approved can help take the surprises out of the process of buying a car and getting it financed, because you will already know in advance what you can feasibly borrow. Remember, just because you qualify for an auto loan, that doesn’t mean you can afford the payments. You should plan to borrow less than you are approved for should you find that you can’t fit the monthly payments into your budget. Make sure you read and understand the terms of the loan before you sign. Also, if you don’t recognize the name of the lender that’s offering you an auto loan, check out their reputation on the Better Business Bureau website.
If your credit is so bad that you can’t get approved for an auto loan, get a credit card designed for people with bad credit and make the payments on time every month. If you’re short on time, you can apply for your credit card online. This will help you to rebuild your credit rating and improve your credit score so that auto loan lenders will qualify you.
Shopping for a Car
You can shop for a new or used car at a dealership, or you can purchase a used car from an individual (private party). Buying a used car is usually the best bet for people with bad credit, since the loan you must get and the monthly payments will be smaller. Before you sign on the dotted line, check the blue book value and the vehicle history report to ensure that the car is worth what you’re paying for it. If you’re buying a used car from a private party, have it checked by a mechanic to see if it has any major problems.
Always buy the least expensive car you can get by with. There are many late model used cars in good condition that you could probably get financed with an auto loan. Many people with bad credit fall victim to the impulse to buy a luxury or sports car when their income won’t support it. Resist this temptation, as it will probably only further damage your credit rating. Instead, get an economy car in good condition, and use the small monthly payments to rebuild your credit rating. Later, if you’re making more money, you can indulge in a nicer car.
Refinance Your Bad Credit Auto Loan
When your credit rating improves, you can refinance your auto loan with a lower interest rate. If don’t owe much, you may even be able to pay it off with a low rate credit card. Always check the terms of your refinance loan or credit card agreement to see if there are any hidden fees such as balance transfer fees and prepayment penalties. However, if your auto loan is very small, consider just paying it off instead.
These tips should help you to overcome the hurdle of bad credit so that you can buy a car. Be sure to manage your finances and pay all your bills on time from this moment forward, and you’ll never have to worry about your credit score again.