So, you want to buy a car, but your credit history isn’t the best, and you’re afraid you won’t be able to get auto financing? Stop right there! Although getting a bad credit auto loan means you may have to settle for a worse interest rate, longer loan term, and higher insurance premium, it doesn’t mean that you cannot find someone who will offer you an auto loan. This article will provide some insight into the secrets behind getting an auto loan with poor credit.
Pay Your Debts
A debt-to-income ratio is a comparison of how much money you earn in a month or year to how much debt you have. Lenders want to ensure that you are able to pay off your monthly debts before approving you for a new loan. If you have an extremely high debt-to-income ratio, you may find getting approved for car loans harder.
Comparison Shop
When shopping around for a loan, check with several financial institutions to find the best rate available. Because you have a relationship with your personal bank or credit union, they may be more lenient about your loan application and consider you a lower risk than other financial institutions.
Choose a Shorter Term
Because of your credit score, you will likely end up paying a higher interest rate. Generally speaking, the shorter the term of the loan, the higher the monthly payments; however, this will also mean you pay less money in interest and will pay off your debt that much sooner.
Get a Co-Signer on Board
Lenders may require co-signers to sign contracts, with the understanding that if the primary borrower fails to make his or her payments, the co-signers will be responsible. Co-signers generally are people with good credit scores who are willing to take on financial risk, so choose yours wisely.
Check out All Options
When you have poor credit, it’s likely that your approved loan amount will be lower than someone with good credit. Dealerships also may not have many cars within your loan range. To avoid disappointment, get your loan approved before test-driving a car so you can find out what types of vehicles are actually within your reach.
Avoid Add-Ons
Extended warranties, such as rustproofing or long-term fabric protection, are often unnecessary. Your aim should be to pay off the loan on your car as soon as possible, and it is important for your credit rating to only spend money on what you actually need and can afford.
