If you have bad credit, the major problem you’ll have to deal with when trying to obtain a car loan is navigating the host of advertisers who claim to cater specifically to you. However, if you’re willing to do your homework and follow some rules that plenty of people have benefitted from, then you will find the best car loans for people with bad credit.
Find Out the Details on Your Credit History
Luckily, this first part is simple and straightforward because of federal laws. Plan ahead to obtain copies of your credit history well before you plan on securing that car loan, so that you can fix any discrepancies. In fact, given that the quality of the loan you will secure depends on your credit score and history, you may even be able to raise this score if you give yourself enough time.
More importantly, the knowledge that knowing your history arms you with is invaluable when going in to meet auto dealers and bank lenders. The credit agencies are Equifax, Experian and TransUnion – and they all have a report on you compiled from different sources. They’ll mail you a copy of your credit report for free one time every single year, so make sure you take advantage of this. If you can, opt for an online source so that you can use the tools to quickly start the process of rectification.
Expand Your Horizons with Local Lenders
This generally refers to nonprofit lenders. Similarly, you can approach your credit union to see the terms they offer on a loan. Some state-centric lenders offer several tens-of-thousands of dollars for a car loan exclusively for residents of those particular states. Many of them will even help you with high-interest debt; with an offer that is the equivalent of refinancing for lower monthly payments when necessary. Look for so-called Community Development Financial Institutions (CDFI) in your region and ask them about auto loans.
Steadily Improve Your Credit History
More than anything else, this will tell lenders that you’re becoming a responsible borrower. Even if you still have bad credit by national standards, improvements in your credit score over the past few months suggests to them that it’s not so risky to take you on; after all, high interest rates are the financial reflection of risk on the part of the lender.
Sometimes, improving your credit score entails holding off on buying the car loan. By focusing on your current credit card bills and paying them on time, you can actually jump from your currently subprime (poor) credit rating to the prime (good to great) rating that lenders love. This will translate into lower interest rate loans down the line – and it shouldn’t take more than a year or so of on-time payments to see this reality come to fruition. Rectifying bad credit, in essence, takes patience and discipline.
Avoid Unchecked Bad Credit Specialists
You simply cannot expect a no-interest or very low-interest car loan if your credit is truly woeful. As such, beware any bad credit gurus that guarantee you this; they’re likely to give you a deal that’s virtually guaranteed to seriously hurt your finances and credit history in the long-run. Opt for tested online sources and big name bank lenders – they will give it to you straight, because their reputation depends on it.
A common problem are the attractive add-ons that unscrupulous dealers will try to convince you are necessary in order to receive financing. This is NEVER the case, and you should walk away from such a deal immediately. They will increase your monthly payments, and you’ll be paying interest on the kinds of additions that should only ever bear a one-time cost. Be alert and armed with knowledge, and your bad credit problems need not hinder you for long.
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