How to Get an Auto Loan with Bad Credit

If you have less than desirable credit, don't let this stop you from applying for an auto loan. Countless car and motorcycle buyers have benefited from competitive bad credit auto loans or refinancing their current rates. The fact of the matter is much of the country is currently struggling with debt and other financial issues. Remember that bad credit auto lenders are in the business of putting people into vehicles - regardless of incomes. This might mean your search for a vehicle will be limited to a predetermined amount due to your current financial state, but you will most likely find a vehicle that will impress.

Know Your Credit Score Before Applying

To begin, take a look at your credit report to determine which category you fit into. Even if you have looked at your credit rating fairly recently, it is well worth the effort to check it again just prior to shopping for a vehicle. Credit scores can be influenced by a variety of factors. Business services company Experian estimates there are 30 factors that can determine your credit score. Payment history, outstanding debt, credit history, pursuit of new credit and types of credit in use are the five main categories that will make up your credit rating. Payment history is considered one of the most crucial components of determining credit worthiness. If your FICO score is less than 680 points (out of 850), you should budget some extra money towards interest. With a lower score, you could see interest rates over 20%. There is probably little you can do in the short term to change your creditworthiness if looking to buy a car, but we highly recommend making payments on time and refraining from opening new charge accounts.

Consider a Trade-in to Lower Your Payments

In order to make it easier to qualify for attractive financing, it is crucial to use all means necessary to lower the principal amount of the loan request. It may be as easy as parting with a vehicle that is not getting sufficient use. People who are able to provide trade-in vehicles tend to have better luck securing bad credit auto financing. Your trade-in will reduce the total amount that the lender will have to extend, which may make them more agreeable to the situation. Always keep this option open if you have an older vehicle that you can part with.

There are other steps you can take to look more desirable to potential lenders:

Consider Financing a Used Car

A great way to get new wheels without being buried alive in debt is to purchase a used vehicle. In that case, you're going to want to investigate the wide range of used car loans for bad credit that are available. Economists estimate that when you drive a new vehicle off the lot, you immediately lose 20% of the value.

Financing a Car after Bankruptcy

As stressful as a bankruptcy can be, it can also represent the turning over of a new leaf. If you remember to look at your bankruptcy as a fresh beginning, it's possible to find the silver lining. For instance, many people assume that they are out of luck when it comes to finding good deals after bankruptcy. Horror stories such concerning loan request denials might leave you unsettled. The truth is securing an auto loan after bankruptcy is perfectly feasible. In fact, some leading economists estimate that you could be able to bump your FICO credit score into the 700 range in as little as two or three years if you make smart financial decisions. By building up your credit worthiness, you might even find a loan that will improve your financial situation.

Be Prepared to Explain Your Situation

When applying for auto financing after bankruptcy, you may be asked for specific details concerning your past. We stress the importance of having logical, polished answers ready to go. You definitely don't want to stretch the truth here, but it is beneficial to put things in sympathetic, reasonable terms. Attempt to show the lender that the issues leading up to your bankruptcy have been rectified. Make it clear that you have learned from the ordeal and that you are ready for a fresh start.

What if I have NO Credit?

Thankfully, it has never been easier to qualify for an auto loan. If you don't have a credit history to show, you still have options. Some lenders offer what is called a guaranteed auto loan, which you might be able to attain if you meet the requirements. These three tips will make it easier for you to secure a better finance rate:

Provide Proof of Income

When you apply for financing, you'll most likely need to be able to provide proof of employment and regular income. This is usually done with your most recent pay stub, so be sure to keep it on record for when you apply. Many lenders look for an employment record of at least six months. When you are looking to purchase a vehicle with no credit, lenders want this information to see that you have a steady income.

• Compile Statements, Bills and Documentation. To further prove your ability to pay the bills, put together a record of banking statements, cell phone and utility bills. While you're applying for an auto loan with no credit rating, these bills can show lenders that you are reliable in making regular payments.

• Have a Plan for Your Payments. Before you begin to apply for the loan, you should first have a payment plan and budget in place. Consider how much you will reasonably be able to spend on a monthly payment, interest rate and any down payment. You can then use an online calculator to figure out which cars you can afford. This will help you to narrow down your choices and ensure that you don't end up with a car that's out of your price range.

Using a Co-Signer

Many banks and lending institutions advise people with no credit or bad credit to secure cosigners. With a cosigner on board, you may be able to qualify for low interest rates and other perks. However, there's always the chance that the loan will ultimately end up in the cosigner's name alone. In that case, you won't benefit directly from making your payments on time. Only consider using a cosigner if there are no other options.

Denied Coverage? Consider Asking for a Second Chance

Nothing is more disheartening than finding the perfect car and sitting down with a representative at an auto dealership, only to be denied financing due to prior circumstances. It's amazing how the mistakes from your past can come back to haunt you, and they always seem to do so at the worst possible moment. Before throwing up your hands and giving up, you should look into the possibility of a second chance loan (a type of subprime financing). It can be challenging to procure a second chance rate. As can be expected, you're going to have to make some concessions. Most notably, you are going to have to deal with potentially higher interest rates. Many times, you will have to accept stringent terms. For example, you may have to agree to a shorter term length with higher monthly payments, making it difficult for you to afford the vehicle.

At any given time, there are bound to be dozens of dealerships in your general vicinity that are offering bad credit financing deals; the trouble is sorting through all of them to find the one that's right for you. The best piece of advice is to avoid being dazzled by all of the hype. Set specific goals for the transaction before walking into any dealership and be sure to stick to your guns. In the end, you'll have the best chance of getting a truly great deal on an automobile.

The last thing that you should ever do is tell a dealership what your ideal monthly payment is. Many times, they will do the math to give you the longest term at the highest interest rate, while still keeping your monthly payment at or below the desired amount. As a result, you could inadvertently end up spending way more on interest charges over the term of your loan. Neglecting to read the fine print on the loan applications could mean you're going to end up paying more interest than you want to. Even worse, there could be terms and conditions you overlook that could end up with the loss of your vehicle if you fail to meet all your obligations.

Where Can I Find Lenders That Specialize in Bad Credit Loans?

Why spend time worrying about finding a reputable lender? Let us do the work for you and make bad credit lenders compete for your hard earned dollar! If you have lackluster or downright bad credit, you can be confident we will work to pair you with a lender that meets your needs. Simply start the convenient form on this page and get into the car of your dreams.