How to Get an Auto Loan With Bad Credit
Many people depend on owning a personal vehicle for various transportation needs. Sometimes an aging car gives out unexpectedly, and you have to get another one quickly. But if your credit score is low, you might not qualify for a conventional auto loan. Here are some tips to help you get a car loan application approved.
Negotiate With Your Creditors
Contact the companies with whom you have credit balances. Ask if they will accept partial payments, so you can buy a car to get to and from work. If you can borrow money from a family member or sell a personal item like workout equipment that you no longer need, you might be able to negotiate a lower payoff amount. For example, if you owe $1,000 but can get $650 in cash, the creditor might agree to accept that amount as payment in full and cancel the debt. Check your credit score frequently to see when it improves.
Consolidate Your Debt
Ask a financial provider about consolidating your outstanding balances into one monthly payment. You could get a lower interest account with smaller payments, which will increase your credit profile when applying for a car loan. If you buy a used car, you might be able to include the cost of the car in the new loan to keep your monthly payments manageable.
Pay Bills on Time
Always pay your bills on time. Late payments are one of the most common ways to ruin your credit rating. If you must be late with a payment due to illness, lost wages, etc., contact your creditors and explain the situation. Tell them when to expect the payment, and then be sure to follow through.
Make a Higher Down Payment
Offer a higher down payment on your car purchase, which means your loan balance will be lower than the purchase price of the vehicle. Get a second job long enough to save up for the down payment on a car loan. The lender may be willing to approve a loan if you can make a hefty down payment first. You can set aside money from each paycheck for a down payment by opening a bank savings account and having deposits made directly from each paycheck. If you own a home, you might be eligible for a home equity line of credit with enough equity to borrow for a down payment.
Apply for a Higher Interest Loan
Applicants who have weak credit might be able to get a car loan with an interest rate that isn’t too bad. But if not, you may want to take a higher interest loan and pay extra each month on the principal balance to pay off the loan more quickly. If you get any financial windfalls, like a job bonus or a cash gift for a holiday or special event, apply it to your loan or work on improving your credit. In six months to a year, you can apply for a lower interest loan and transfer your remaining balance.
Work on Improving Your Credit Rating
While paying off a down payment or a higher interest car loan, keep working to improve your credit score. Pay bills on time consistently. Avoid opening new credit accounts. Reduce unnecessary spending, and apply unspent earnings to your debt. Get a copy of your credit score every few months to ensure it accurately reflects your credit status, including the names and contact information of creditors along with your correct credit balances. If you find mistakes, address them immediately.
Even with bad credit, a car loan may be approved using tips like these.