If you have bad credit, it can be difficult to find a lender who will give you a car loan. However, it is not impossible. There are several things you can do to improve your chances of getting approved for a car loan. In this blog post, we will discuss some of the best ways to get a car with bad credit. We will also provide tips for finding lenders who are willing to work with borrowers who have bad credit. So don’t give up! There is still hope for you to get behind the wheel of your dream car.
If you are in the market to buy a car and you have a low credit score, getting approved for financing can be difficult and expensive. Traditional banks and financial institutions use your credit rating, mostly your FICO Score, to determine the likelihood of your paying back your loan. Individuals with poor credit scores, a FICO Score under 600, is a higher risk for lenders to loan money to. When banks consider you a high risk they will lend you money for a loan but you might have higher interest rates or be required to put down a large down payments.
Having a higher interest rate can cost you hundreds or thousands of dollars in interest rates. For example, a person who has a 781-850 credit score their average loan rate for a new car is 2.58% and 3.68% for a used car. While someone who has a credit score of 501-600 will have an average interest rate of 9.92% for a new car and 15.91% for a used car. This is the average rate for a 60-month new-car loan and used vehicle loan. Before you buy a car with bad credit we will go over some steps you can take to find the best loan for you.
Can I Get An Auto Loan With Bad Credit?
Yes, it is completely possible to get an auto loan with bad credit. While a bad credit score may cost you more money, and higher interest rates to get a new vehicle there are still ways you can find acceptable rates with these simple steps:
- Know Your Credit– Before you decide to apply for a loan you should know what your credit score is and review your credit report. You can get your free credit report here and check your free credit scores on these credit monitoring apps. If you find any inaccurate information on your credit report you can dispute those errors. Any inaccurate information could be lowing your credit score and impact your ability to get approved for an auto loan.
- Large Down Payment– try making a larger down payment when you apply for a loan. The larger down payment will lower your monthly payment and could qualify you for better rates.
- Budget– Create a budget using a software like Quicken to see if you can afford a new vehicle. Before you buy a car you should know if you can afford all the expenses of a new vehicle such as monthly loan payments, loan rate, car insurance and maintenance. When car shopping look for an inexpensive vehicle first to see what you can afford.
- Pay Off Debt– Having a lot of debt can lower your credit score and could be a red flag to lenders that you may not be able to make the payments in order to pay off your car loan. It would be a good idea to work on paying off any debt you have before you apply for a car loan.
- Get A Co-Signer or Tradeline– Consider adding a co-signer to your auto loan application that has good and excellent credit. A family member or a relative is a good place to look for a co-signer. If you don’t have anyone who is willing to be a co-signer or know anyone with a higher credit score, you might want to consider buying a tradeline which will temporarily increase your credit score.
Related: What Are Tradelines and How To Buy One?
How To Find Lenders For An Auto Loan With Bad Credit?
Just like car shopping you should be loan shopping before you make a decision on who you should open a new loan with. Each lender and financial institution offers different loan rates and has a different approval process so shopping around to find the easiest and best loan for you needs is very important. Here are some lenders and loan options you should consider if you have bad credit:
- Your Current Bank– Due to your relationship with your current bank that should be your first option to consider. They are more willing to help you out than a new lender might be. If you don’t have a good relationship with your current bank or they don’t offer auto loans you can choose from any of the other options below.
- Credit Union– Credit unions tend to have lower costs so they can offer better rates than traditional banks. So talking to a local credit union could be a great option for someone looking for a car loan with bad credit.
- Car Dealerships– Dealerships tend to have good relationships with numerous banks and auto lenders which makes them a great choice for finding a loan amount that works within your budget. Some of these dealerships also offer special financing for bad credit. You can find these in your local area by searching bad credit car dealerships.
- Online Lenders– Online lenders that specialize in auto loans can offer better deals for people with bad credit. These online lenders allow you to prequalify on their websites. Once you’re qualified they will show you the loan amount you’re approved for, the loan rate, and loan payment. Keep in mind that just because you are prequalified doesn’t guarantee you’ll be approved for the loan with the estimated loan rate. Some online lenders don’t require a credit check.
- Buy-Here-Pay-Here Dealerships– This type of car dealership allows you to buy and finance the car right at the car dealership. They specialize with working with people who have bad credit giving them the opportunity to find funding.
Related: How To Add Tradelines To Your Credit Report That Increase Your Credit Score
Best Online Car Loans For Bad Credit
These online car loans are the best options for purchasing a car with a poor credit score.
The best place to shop around for auto lenders is through Supermoney auto loans. This powerful tool does all the hard work for you to find you the best loan offer from competing lenders getting you the best loan terms for your needs. You can apply for loans up to $100,000 with rates starting at 1.90%.
You can apply online in seconds by just telling them some of your personal information and how much you are looking to borrow for your car. Supermoney will then compare rates, terms and payments from lenders so you can see all the options side by side making them easy to compare.
Carvana who is one of the most popular online car dealers also offers car loans for applicants that have bad credit. As long as you have a minimum of $4,000 per year income with no active bankruptcies and are 18 years of age you can get approved. They don’t make a hard inquiry on your credit when you prequalify so it won’t impact your credit score.
New Roads offers hassle free auto financing that is for anyone with bad credit or bankruptcies. You don’t need to have a down payment, there is no application fees and it’s fast and easy process. They offer new and used car loans as well as lease buyout loans and refinance loans.
Best Online Lenders For Car Loans & Repairs
LoanMart offers auto title loans. A car title loan is easy to qualify for as you are already using the monty you have put in your vehicle to secure a loan. People choose auto title loans as they are a fast way to borrow money. You can have money in your hands in one business day. This way of borrowing money is quick and easy for anyone who has bankruptcies and bad credit just by using your car title to unlock cash. They offer competitive interest rates to get you the best loan.
LoanMart is available in 29 states so it’s not available for everyone in the United States. You don’t need good credit in order to apply as it doesn’t carry a lot of weight in their lending decision. They can find a plan for anyone no matter what your credit score is. They report your payment history to Experian and Equifax to help increase your credit score.
OppLoans is another popular online lender for loans. They offer personal loans that can be used for car repairs, home repairs, medical debt, weddings, or debt consolidation. Their loan rates vary by state and other qualifications but most loans are typically between $500 and $4,000. OppLoans also offers bad credit loans for anyone who has a bad credit score, which is considered a FICO score under 670.
Related: 5 Best Bad Credit Loans Guaranteed Approval
How To Compare Bad Credit Auto Loans?
Before you make the decision on what lender you want to go with you should consider a few factors before you apply for a bad credit loan:
- Annual Percentage Rate (APR)– How much are paying for you loan annually? Is the cost of the worth affordable for you? Bad credit loans will typically have higher interest rates as you are considered high risk for not paying the money back so make sure the percentage is something you are fine paying and can handle.
- Repayment Terms – How long is the loan payment for? Can you afford the monthly payments? Make sure the costs
- Read The Fine Print– Make sure to read all the loan terms associated with the loan to make sure you are comfortable with all the terms. Some lenders like to throw in some unfavorable terms such as if you fail to make a couple car loan payments they can repossess your car.
- Fees– Does the lender charge late fees or penalties? Make sure to take notes on all fees to avoid paying any extra money.
- Credit Building Options– Does the lenders report your tradeline to credit bureaus? Reporting on-time payments to the credit bureaus can help increase your credit score.
Related: Self Credit Builder Loan
Can I Get A Car Loan With A 500 Credit Score?
Yes it is possible to get a car loan with a 500 credit score. Some car dealerships offer a bad credit auto loan option, online lenders offer individuals loans if they bad credit or no credit at all with some even offering no credit check.
The bad news is that it would be extremely difficult to get approved for a bad credit car loan with lenders like Capital One, Wells Fargo or Bank of America. These types of lenders require borrowers to have excellent credit scores in order to qualify and don’t offer bad credit car loans. Some do offer car loans if you have a lower credit score but you might need to meet certain income requirements or pay a large downpayment.
If you want to increase your chance of getting bad credit car loans approved, you should try to get a co-signer with good credit.
Online lenders are more willing to work with bad credit borrowers because they use different criteria when it comes time for approval . There are a number of online lenders, such as Carvana, that specialize in bad credit car loans.
In addition to the options listed above, you can try to get a car loan from a buy-here-pay-here dealership. These types of dealerships typically have lower credit score requirements and they deal with people who have bad credit
What Is The Lowest Credit Score To Buy A Car?
The lowest credit score to buy a car is typically 500, but this varies depending on the lender. Some lenders may approve a borrower with a lower credit score if they have a co-signer with good credit. Others may be more willing to work with bad credit borrowers if they take out an auto loan through an online lending platform. No matter what, it’s important to shop around for the best interest rates and terms.
Related: What Is The Average Credit Score For An Auto Loan
What Are The Benefits Of Buying A Car With bad Credit?
There are a few benefits of buying a car with bad credit. One is that you may be able to get a car with a lower down payment. Additionally, you may be able to get a car with a longer loan term, which will lower your monthly payments. Finally, bad credit borrowers may be able to get a car even if they have been turned down by other lenders.
What Are The Risks Of Buying A Car With bad Credit?
The risks of buying a car with bad credit are mainly that you may end up paying more for your car in the long run. This is because bad credit borrowers tend to get stuck with higher interest rates and may not have as many negotiating power when it comes to the price of the car. Additionally, a car purchased with bad credit may be worth less than one bought with good credit, meaning you could lose money if you decide to sell it.
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What Credit Score Is Needed To Buy A Car With No Down Payment?
In order to buy a car with no downpayment you will need to have a good to excellent credit score, which is considered a FICO Score of 700 and above. You don’t always need to give a down payment when buying a car. If you have an old car you can use that as a trade-in as your down payment instead.
If you have a credit score below 700 lenders might require a down payment to show good faith that you can afford the car as a lower credit score puts you in the high risk of not being able to pay your loan back. A down payment can be good thing as it can lower your loan amount and make your monthly payments more affordable.
Related: The Easiest Ways To Increase Your Credit Score
What Credit Score Does A Car Dealership Use?
Most car lenders and car dealerships use the FICO Auto Score 8 or the FICO Auto Score 9. FICO Auto scores range from 250-900. Before you apply for an auto loan you should find out with your FICO Auto Score is. You can check this score with the myFICO app.
In Conclusion
You can buy a car with bad credit. But you should do your research before applying for any bad credit car loans. You can check with bad credit lenders to find out what interest rates they offer and if they report payments to the major credit bureaus.
In some cases, you may get a better deal on bad credit auto loan than in other cases when you have bad credit .
Remember, bad credit can haunt you for years. So it’s important to get the best car loan deal you can when buying a new or used car. If you don’t like the loan terms on a car loan with a bad credit score, wait and work on increasing your credit score before you buy a new car.
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