Given the preponderance of advertisements beckoning people to shop for cars regardless of their credit situations – yes, you can get a car loan with poor credit.
With that said, you do have to be careful when you get a poor credit car loan because all of them are not created equally. Some of them cost a whole lot more than others.
Here’s how to get the best one for your situation.
Know Your Credit Score.
Whether good, bad, or ugly, your credit score will be the key factor when it comes to qualifying for your loan. The good news here is ‘poor credit’ is a relative term. The better news is your credit might be better than you think it is. But the only way you’ll know is to take a look before anyone else does.
Federal law mandates your entitlement to one free peek at your credit report every year form each of the three major reporting entities (Experian, Equifax and TransUnion). You can order yours at annualcreditreport.com; ideally long before you start shopping for car. This way, if there are errors on your report, you’ll have time to clear them up and improve your score.
Pay Attention to Interest Rates
Too many people walk into financing situations with no idea of what constitutes a fair interest rate. Sure, a lower credit score means you’ll pay a higher rate, but if you aren’t aware of what’s fair for your situation, you’ll be at the mercy of the lender. If you know what the average running rate is, and they quote you a number double that—or more—they’re trying to take advantage of you.
Determine Your Budget
Car salespeople are trained to ask how much you can afford in the following way. “How much did you plan your monthly payment to be?” If you answer, they’ll reply; “Up to—?” If you then say a higher number, you just made the price of your car higher—on your own.
Before you go shopping for a car, stop and get a firm handle on your monthly budget. Compare your expenses to your take-home pay and see what’s left after all of your needs (including savings and investments) are met. Whatever that number turns out to be, don’t let anyone push you past it—period.
By the way, the only answer to that question is, “The payment doesn’t matter; here’s what I’m willing to give you for the car.” Which you can say confidently, if you get pre-approved.
Online lenders are your best bet for a poor credit car loan pre-approval. They’ll pull your report once and shop it around to find you the best deal. This is important because credit-reporting agencies lower your score when you get too many inquiries.
Having a pre-approval in hand reduces the anxiety you’ll experience at the dealership wondering if you’ll qualify. Plus, you can pit the dealer’s lenders against your pre-approved loan to see if you can get a better interest rate with the same terms.
Best of all, a pre-approved loan positions you to negotiate the price of the car rather than the monthly payment.
Bring Money with You
Do everything you can to offer as large a down payment as possible. The more cash you contribute to the deal, the less interest a lender will charge. This will make a poor credit car loan more affordable—as well as helping to ensure you get it in the first place.
So yes, you can get a car loan with poor credit.
When you do these four things, you can also get a car loan with your head held high!