5 Tips For Finding The Best Bad Credit Auto Loans
By Shane Dayton
Everyone knows that it is very important to have a decent credit score when you are trying to buy and finance a car. However, sometimes financial emergencies or poor money management practices can result in a person having bad credit, making it more difficult to get an auto loan with favorable terms. However, although a bad credit score can make it a bit more difficult to finance a car, careful planning can help you still obtain a loan that will fit your needs and provide you with the opportunity of improving your credit. The following are some tips to help you find the best bad credit auto loans.
How To Shop For The Best Auto Loans When You Have Bad Credit
Keep in mind that your credit score will be treated by each lender somewhat differently. The interest rate that you are offered can vary widely between lenders, and you will want to keep in mind that knowing how auto loans work will help you get the best possible deal.
In addition, don’t just focus on lenders that provide bad credit auto loans. Mainstream lenders might be able to provide you with a better or at least equal deal. You will also have the peace of mind of knowing you are dealing with an established lender. The best place for you to start might be your own credit union or bank since they will already be familiar with your personal finances.
Know What Your Credit Score Is
Unfortunately, you won’t qualify for a low APR on an auto loan if you have a bad credit score. According to MyFico, in January 16, customers having a 620-659 fair credit score on a new car had an average loan rate of 9.4%, while customers with 500-589 bad credit scores had an average 14.8% rate.
It is very important for you to know what your credit score is. Don’t just trust a dealer and get stuck with a bad loan that is worse that what you should qualify for.
Take Someone With You
When you desperately need a car, it can be tempting to say “yes” to whatever a dealer offers you. Take a friend or family member along who can help keep you calm and be the voice of reason for you. They can make sure you don’t fall for unnecessary add-ons and help you be on the lookout for scams that are commonly used to target bad credit consumers.
Opt For A Short Loan Term
Instead of just considering the monthly payment, make sure you take into account the total cost of the car instead. Dealers will often offer you the lowest payment possible so that you will agree to a longer loan term since that helps them earn more money. However, you can save a lot on interest if you choose the shortest loan term that you can afford.
Avoid “Buy Here, Pay Here” Car Lots
These types of lots claim they do business with everyone, no matter how bad their credit score is. This is true for the most part. However, you could end up stuck with a very high interest rate (frequently starting at about 20%) and long term loan on a used car that has high mileage. Try not to use these lots unless there aren’t any other reasonable options for you. Also make it is a reputable dealer by checking its accreditation with the Better Business Bureau and reading online reviews.
Only Get A Co-Signer As The Last Resort
One option is to have a co-signer who has better credit than your sign along with you for a car loan. The co-signer’s credit will be used by the lender for deciding on the terms.
However, the co-signer will be taking on a big risk by doing this. This person will also be responsible for the payments should you stop being able to afford to make them. If you think there is a chance you might default, don’t ask a family member or friend to become a co-signer for you.
Beware Of All The “Extras” Offered By Dealers
Consumers with bad credit need to be very wary of a dealer insisting that extras be purchased in order to obtain a loan. They might include expensive insurance add-ons or extended warranties that will ensure that your loan is paid back in the event you should become disabled or die. Other extras such as security systems or rust proofing could also be included. All of these add-ons increase how much your loan is. If a dealer won’t provide you with financing unless you agree to the extras, walk away.
Although it can be more difficult to find a reasonable loan when you have bad credit, if you follow the above tips it will help you find the best bad credit auto loans. Because the vehicle itself acts as collateral, the good news is that you will find it much easier to get an auto loan with poor credit than say a personal loan with bad credit.
Whatever the final deal, there’s no question that wherever your credit score is at, it definitely pays to do your research.