A Guide to Buying a Car with a Low Credit Score

It is a common misconception that having poor credit keeps you from being able to qualify for a loan. While having good credit can give you much better terms, having poor credit does not exclude you from qualifying for certain loans.

Auto loans do not have a minimum score, however, it might take a bit of effort to find just the right option. There are certain steps that are suggested in order to go through the loan process. Since lower credit scores may eliminate a person from some loans, research can definitely lead to appropriate options that cost less overall and have a higher chance of approval.

The first step is to know and understand your credit score. It is easy to get a free copy of this. This is important since there may be errors on it that need to be corrected. You can also start taking the steps to improve your score. This can start immediately by making it a practice to avoid late payments on our bills. You can also see if there are any collections on your bills and start making arrangements to pay those off as well. Reducing your debt gives you a much better chance of qualifying with better terms. Experian offers tools for free that can help you in this endeavor.

When buying a car, it is also important to know what you can actually afford. You have to figure out the amount of down payment you need, and then the monthly cost of the loan. Auto expenses also include insurance, gas, and maintenance, therefore this also needs to be considered.

Coming up with a down payment also provides for a better car loan experience. The more money you are able to put down initially, the more favorable the cost of your monthly payments will be. This may also give you a better interest rate from the lender because you are not providing as much potential risk to them when the amount of money they have to loan to you is reduced.

A good idea would be to get preapproved for a loan before shopping for a car. This gives you a better idea about what price you can look for. It can also be used in negotiating the final price of the car.

Take the time to look around at different lenders. There are lenders that specialize in working with those with lower credit scores. They usually offer higher interest rates. These types of lenders also specialize in working with people to get approved despite how low their credit score is.

What types of loans are available from lenders that specialized in those with low credit? Captive financing is where you not only buy but also finance the auto loan through the dealer. These might be the easiest option for those with poor credit.

Dealer lending is somewhat similar, however, they are not offering their own financing, but instead, they seek out other lenders to finance your loan. In this case, you may have the option of choosing between a number of lenders. Banks and credit unions are also obvious options. If you already have an established relationship with them as a customer, they may choose to act as a lender for a loan even if there are some issues with your credit. There are also online lenders that specialize in those with poor credit. It is especially important to do your research. You want to make sure you are dealing with a reputable lender. Some dealers offer “buy here, pay here.” This is an option for those with no credit or very poor credit. It must be noted that the downside of these lenders is the high-interest rates, the lack of inventory options, and the high down payment that might be required.

There are options out there despite what your credit score might say. The important thing is to do your research and be aware of your options. Put the effort in to find the best deal for you and your situation.



Alex is the co-author of 100 Greatest Plays, 100 Greatest Cricketers, 100 Greatest Films and 100 Greatest Moments. He has written for a wide variety of publications including The Observer, The Sunday Times, The Daily Mail, The Guardian and The Telegraph.

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