Average reading time: 2 minutes
Having bad credit doesn’t mean you can’t get a car loan. It just means that it will be a little more challenging. If you understand how your credit influences your chances of getting a loan, you will know what you need to do to make the process go more smoothly. The first step is taking a close look at your finances and creating a budget so you know what you can afford.
Check Your Credit Report
Once you know what you are capable of checking your credit report will give you a good idea of where you stand in terms of getting a loan. Look for any negative reports and find out what you need to do to turn those negatives into positives. Make payment arrangements or pay off small balances.
Look for any items that have been cleared up but still remain on your report. Call the companies to find out if they can have them taken off of your report. You can also contact the credit bureaus to find out what they can do about removing old or outdated accounts that have been taken care of.
Start With a Down Payment
The next step is to start setting aside a little money out of each check for a down payment. Having a down payment in hand when you walk in the door means that you are serious about working out a deal and leaving with a car that day. A good goal to shoot for is around 10% of the price of the vehicle you are wanting to buy. In most cases, however, even if you have a small down payment, many places will work with you on financing.
Be Prepared for a Higher Interest Rate
Bad credit almost always results in a higher than average interest rate. The good thing about this is that if you accept the higher interest rate and pay on the loan for a year or more, two things will happen. First, your credit score will go up showing you are a good risk. Secondly, you will be able to refinance your auto loan for a much better rate, especially if you have paid ahead and have brought the balance down considerably.
Getting a car loan when you have bad credit isn’t impossible. You just have to be willing to work on improving your situation and show lenders that you have what it takes to maintain the payments once you have them in place. Look for a dealership that will work with you on the details and you will be driving your new vehicle in a few hours instead of a few months.