5 Simple Steps to Buy a Car With Bad Credit and Get the Auto Loan You Want!
STEP 1 – Check Your FICO Credit Scores and Credit Reports.
The first step to qualifying for a better car loan with a lower APR is to check your credit score that the credit bureaus are reporting on your credit history. Even with excellent credit, it is important to find where you stand with your credit rating and credit problems that show up on these reports.
You can do this online for free. TransUnion, Equifax, and Experian offer credit reports that make up the credit rating that lenders use to set you Annual Percentage Rate or APR. Our resource page provides a link where you can get free credit score evaluations in seconds. You also have the ability to get monthly updates if you choose to sign up for this option as well.
Knowing your present FICO credit score will allow you to use tools like online auto loan payment calculators to estimate what your monthly car loan payments would with different down payment amounts at various interest rates. It will also help you know what type of auto loan lender you should apply with to be approved for your vehicle loan or car lease.
If you use car dealership financing, it can also help you to know if the finance agent is offering you a fair interest rate or if they are taking advantage of you with an overpriced auto loan. Many car dealers do not intentionally offer you bad rates. They just cannot provide lower rates for customers with low credit scores.
This credit rating chart can help you understand how you fit into the loan category rating system.
- Decent | 625 – 600
- Average | 600 – 575
- Below Average | 575 – 550
- Semi-Poor | 550 – 525
- Poor | 525 – 500
- Bad | 500 – 450
- Awful | 450 – 425
- Terrible | 425 – 400
You should understand that there are ways to rebuild your credit even after a bankruptcy, but they take time and planning.
One fast way to raise your credit score is to increase your credit limit on any revolving credit accounts you have. For instance, many young people start out with one or two credit cards and eventually come close to their credit limit with charges. Now if you are trying to get a conventional loan for a car or needed cash for a debt with maxed credit limits on your cards, you will not qualify for a substantial loan.
The problem is that your charged debt is too close to your credit limit. Now if you have never requested to have your credit limit raised on those cards, now is a good time to do so. By simply calling your credit card company and requesting a higher credit limit you will increase your available credit. This will automatically raise your FICO credit score.
There are other fast ways to increase your credit rating as well, like paying down a card balance or consolidating your debt. Anything that raises your credit limit will also help your credit point score.
If you think you have mistakes on your credit report, by all means, contact the credit agency and have them corrected as soon as possible, before you apply for your car loan.
If you need a car loan now and are satisfied that your credit report is accurate and you cannot raise your credit limits, then you will have to work with the score you have for now. Remember that any conventional car loan can help with credit repair. Your damaged credit score can be turned around with a special financing car loan.
The next thing to do is review your personal budget and make a simple plan for what you can afford and monthly payments. Again, an online auto loan calculator is a helpful tool in estimating what you can afford. You will need to have your credit score and the down payment amount you are planning to use along with an average APR you would qualify for to get the most accurate estimate.
STEP 2 – Meet These Simple Criteria for Minimum Credit Scores
So you have your credit score, you know what car price range you can afford and what your monthly payment estimate will be. The next step is to make sure you will be able to meet the auto lenders requirements for a bad credit loan approval application.
- You will need to show a monthly income of $1,500 or more per month that can be documented with a tax document.
- You need to be a legal resident of the United States and have a Social Security number.
- Do you have a continuous full time or part time employment or a fixed income that can be documented?
- Can you give an actual street address where you live and not just a PO box number?
- Do you have a working phone number where you can be contacted?
- Can you give a business phone number where your employer can be reached?
- Do you have the vehicle information if you are purchasing a vehicle from a private seller such as make, model, mileage, and loan amount?
If you are applying for a new car auto loan or pre-approval car loan, you will not need the vehicle info to get pre-approved for your loan, but you will need vehicle information later to complete the auto loan.
STEP 3 – Choose the best loan offer to buy a Car with Below Average Credit
Step 3 involves your credit rating and is simple. If you want to qualify for an acceptable car loan with slow credit, then use a lender that will accept your FICO score for what it is and is willing to offer low-interest rates to get your business. No credit check dealers will not help you repair your credit.
Shop different subprime auto lenders or low-income auto loan lenders and look for a fair interest rate. You can do this in one of two ways. You can apply to a lot of different lenders yourself, or you can use an auto loan broker like Valley Auto Loans to find the best deals for you.
Applying for financing yourself is time-consuming and puts lots of hits on your credit report. Using a broker lets several credit lenders review your loan application, so you get the best deals from a pool of lenders without several different credit checks. Shopping for auto financing this way creates competition between lenders and causes lower APR rates for low credit scores borrowers.
STEP 4 – Shop Around at Auto Dealers and Private Car Sellers
Step 4 includes shopping around for a car and doing some price comparing on the internet.
If you have slow credit, your biggest challenge is finding financing for a good quality car with low monthly payments. If you have low FICO scores, you may not be able to do much with the interest rate, but you can still achieve a lower monthly payment by being careful about the car you select.
With a high-interest rate loan, applying a large down payment is the easiest way to get a lower monthly payment. However, most folks do not have much cash for a hefty down payment, so the next best thing is to get a low price for the car you purchase.
Shopping around, not taking the first deal that comes along and using the information found in the New Cars and Used Car Buyers Guides can help you turn a good car purchase price into a great car deal. You will need to use the negotiating skills you learned in our “New Car Buying Guide” to land that fair car price.
Good credit or bad, the more you save on the actual sticker price of the car automatically gives you a lower monthly payment and or shorter loan terms. That is why it is important to have the vehicle information with you when you shop.
Know the trade-in value of the car you are buying and the resale value before dealer markup. Search car specs for the cars you are interested in and know what the options are and how they affect the selling prices. Compare vehicles of the same quality between different dealers to get an idea of what the market value truly is.
STEP 5 – Negotiate The Best Price and Avoid Financing Ripoffs
OK, for step 5 you will need to take a few minutes and sit down with a notepad and do some online reading to update yourself on car dealer financing scams and car loan tricks.
Almost any car dealership you visit, you will find car dealers that are trained to use negotiating tactics on you. Take note of any car financing scams or dealer tricks that you may feel vulnerable with and need to try and avoid.
Valley Auto Loans can help you with all of this with their Avoiding Car Dealer Scams and Pitfalls page. You will be surprised how many people think they are getting a good deal on a car only to find out that the dealer overcharges them on everything from the price of the car to the financing they used to get the vehicle loan.
If you don’t feel confident negotiating car sales offers then find a friend or a friend of a friend who is knowledgeable in car pricing to go with you and help you buy a car with confidence.