Having bad credit creates challenges, and the car buying process is no exception. However, the key takeaway here is to recognize that there is a difference between challenging and impossible. With the right tips, securing a loan for a car with less than stellar credit is an achievable goal.
Know your Credit Score
There is some confusion when it comes to credit scores. Many people assume that a bad credit score is the same for a credit card, home loan and car loan application. The reality is that a bad credit score for a home loan might be an okay score for a vehicle loan or credit card.
Perform some research to see if you have poor credit based on the type of loan you're trying to secure. In some instances, you might also be only a few points away from reaching another score bracket. If you're close to bumping up your score out of the red zone, it might be smart to wait a couple more months to purchase.
Choose the Right Vehicle
Being a borrower with a lower credit score puts you in a higher risk category. Lenders view high-risk borrowers as having a higher probability of defaulting on the loan. In the event this was to happen; a lender wants confidence they can resale the vehicle.
If you're choosing an older model car with high miles thinking it will improve your chances of approval, this could lead to a denial. A vehicle in this condition is going to be harder to resell, meaning the lender will be stuck with it if you default. Choose a vehicle that has a good resale value for a more favorable chance.
Start with your Bank
In the world of financing, relationships matter. If there are two applicants with same credit score, but one has a long-term, good relationship with the lender that applicant is more likely to get a second look.
If you've had an account for many years and have consistently had your paycheck deposited into your account, the bank might be willing to take a chance with you if you were to make an agreement, such as automatic payments. Make your bank your first stop. If you are approved being able to pay your bill and monitor your loan and account in one place will be convenient.
Shopping for a loan with bad credit does require more effort, but it will be well worth it in the end. As an educated buyer, you're well on your way.
