Bad credit is never ideal when taking out a loan. How much higher will your interest rates be? Can you even get approved? Is it possible to improve your credit? In short, the situation is not ideal, but you still have options if you are buying a car with bad credit.
Often, if your credit score is borderline, whether or not you have bad credit is the personal opinion of the lender. For one lender you may present a healthy amount of risk and for another, you may present too much risk. In this article, we show you what to consider if you are buying a car with bad credit.
1. Shop Around for the Best Rates
Regardless of your credit score, it is never smart to accept a dealership loan without seeing your options first. If your credit score is below 650, chances are dealers won’t be offering you the lowest interest rates. First, check with your bank or credit union to see what options they can offer you. You can also check BankRate.com to compare interest rates and find the best ones for your situation. Of course, you still may not find the rates you are looking for. This brings us to our next tip.
2. Pay a Larger Down Payment For Lower Rates
If you’re buying a car with bad credit, paying more up front for the vehicle can often help you get a lower interest rate. Is every lender going to accept a larger down payment to lower your interest rate? No. But as we said, it is often up to lender whether or not they think you are too much of a risk. Being able to save up a lump sum amount can show the lender your ability to save money and help make the case that offering you a loan doesn’t present too much risk. Also, the lender will be taking on less risk to start with because you will be lowering the amount of money you owe them. Not every lender will take on this deal, but some definitely will.
The hard part is this:
You have to save up the money. Loans often motivate us to put the money we need away (because you have to make a payment every month). When that money is laying around, it can often be tempting to spend it on something else.
3. Buy a Used Car From a Private Seller
Used cars from private sellers are almost guaranteed to be cheaper than dealership cars. Also, in some cases, you can negotiate with private sellers to let you pay in installments over time. The obvious caveat is this: a private seller has to be willing to accept the risk (and many won’t).
But we have a solution to this!
At TRED, you can take out a loan to buy a car from a private seller. How is this possible? When someone buys a car on our platform (even through a loan), the private seller isn’t the one who takes on the risk. Sellers get paid, and we (or another financial institution) take on the risk. Also, since used cars cost less, there’s less money involved which creates less risk. This gives us the ability to find good loan options for people buying a car with bad credit.
4. Find a Cosigner
Let’s be honest: when you use a cosigner, that person is taking on a lot of risk on your behalf. Generally speaking, this method should be reserved for spouses and children who are trying to build credit. Even then, there are still risks which you should be aware of.
On the upside, you can lower your interest rate and pay less money over time. But you must be confident that you can make your payments on time. If you aren’t, you have to understand that you are risking your relationship with your cosigner, and you may be putting them at legal and financial risk.
Make yourself aware of all the risks and problems that can occur with cosigning before asking someone to take this on.
5. Find a Credit Repair Loan Agency (But Be Careful)
If you have a simple credit issue, then you can easily try to repair your credit on your own. But if the situation is complicated and you have more than just one or two issues, you might consider hiring a credit repair loan agency.
These agencies will pull all your credit reports and identify any discrepancies and errors that impact your credit score. They can also get certain items scrubbed from your credit report based on current laws.
So if you see anyone claiming “immediate improvements” or “100-point jump now,” run away!
Also beware of anyone asking for upfront payments. As Randy Padawer from Credit.com tells us, “The FTC prohibits credit repair companies from charging for credit repair before any work is complete. Run fast from anyone who asks for money upfront or who promises a new credit file overnight.”
If you are buying a car with bad credit, there is no need to worry. There are always options to consider. Just be sure to know the risks you are taking on by getting a loan with bad credit and how to find good interest rates despite your credit situation. Whether you choose to deal with private sellers through TRED or repair your credit, these tips should help you find a loan and buy a car despite your credit score.
If you found these tips useful and want to find a car loan, see our article about online loans and get a quote in just minutes.
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