Bad Credit But Need a Car? Here’s How to Get a Loan

Car Loans for bad credit are possible, but exorbitant interest rates accompany them. Holding back on your purchase and improving your credit score is viable. However, if you urgently need a car, we have shared a few friendly solutions in this blog post.

If you need a car loan with less-than-perfect credit, your financing options might be expensive. After all, your credit score is a measure of your trustworthiness as a borrower. The lower the credit score, the more risk your lender takes. Therefore, your interest rate is higher. You can reduce the interest rate by requesting a secured loan which requires keeping a collatoral with the bank. However, secured loans are risky for the borrower because if you fail to make your payment, your lender has the legal right to seize your collatoral to cover the remaining amount.

The Difference in Interest Rate

Someone with a credit score between 500 and 600 will accrue an 11.03% interest rate on a new car and a 17.11% interest charge on an old one in 2021. However, for someone with a prime credit score between 661 and 780, the interest rate for a new car is 3.48%, and for an old car, it’s 5.49%. The difference is almost 7% on a new and 12% on an old car. Therefore, increasing your credit score seems like a better option.

How to Get Financed for a Car With Bad Credit

How to Get Financed for a Car With Bad Credit 

While it’s not easy to secure a car loan with bad credit, trying these tips will improve your chances.

Check Your Credit Report

Before shopping for lenders, you should check your credit report for discrepancies. It’s common for the credit bureau to make mistakes, and you can dispute those errors. Sometimes, your credit score drops because of these errors. Getting them resolved before asking for a loan is a good decision.

Save Up For Downpayment

If you see no hopes for increasing your credit score, cut down your interest rate by making a substantial downpayment. By making a large downpayment, you can reduce your remaining amount; therefore, the interest rate applied will drop.

Plus, several lenders will be interested in offering loans when you show that you have a large capital to invest in your car. Hence, you can take advantage of this situation and bargain for a lower credit score.

How Much Can You Afford?

A car is a liability that comes with additional expenses. Most overlook this fact before buying a car. Therefore, their loan amount is higher than they can afford while paying for gas and maintenance. You don’t have to worry about the repair cost when buying a new car. However, you have to factor in fuel cost.

On the other hand, an old car comes with a repair cost. Keeping these factors in mind will help you decide how much you can afford in loan payments. As a result, you’ll start looking for a car within your budget.

Explore Your Options

Shopping around for lenders increases your chances of securing a low-interest loan. However, don’t assume you’ll find interest rates as low as people with prime or super-prime credit scores. The difference might be small, but it mounts up to thousands of dollars in the long run.

So keep your options open and talk to all the lenders within your vicinity. Don’t hesitate to share the rates you were offered at other places; this increases the likelihood of the other party matching the bid or offering lower rates. However, don’t lean on this tactic too much; otherwise, you might lose the best offer at hand.

Check Out Online Lenders

Some lenders specialize in car loans with bad credits. Checking out their services and offer helps you understand what interest rates you might face at the bank. Some online lenders offer prequalification directly on their websites.

Hence, you can check what interest rate you will get based on your credit score and payment term. However, don’t get your hopes up because prequalification doesn’t mean you qualified for the loan.

Try Car Dealerships

Car dealerships have connections in banks that might help you secure a car loan with bad credit. Since they want to make a sale, they’ll be more motivated to get you a loan than your best friend. Some car dealerships have a finance department dedicated to helping people with a bad credit score.

The Bottom Line

Securing a car loan with bad credit isn’t easy. The constant rejection or exorbitant interest rates might have you giving up on the idea. But where there is a will, there is a way. The tips we have shared above will help you secure a car loan within your budget.

Rate this post