How To Buy A Car With Bad Credit | Car Loans For Poor Credit | No Credit Auto Financing

Posted by Banks on July 20, 2011 · Leave a Comment

How To Buy A Car With Bad Credit | Car Loans For Poor Credit | No Credit Auto Financing

Have you been trying to get a car loan but your credit situation is holding you back? Buying a car with bad credit can seem like an impossible task. Today a lot of people end up with bad credit that never thought they would. And things that they used to think were easy to get are suddenly not easy. We’ve been building a bad credit resource to provide reliable information to people who are in financial trouble, and so far this is what we’ve covered:

Back to the matter at hand. You need to finance a car, but you have bad credit, and you need to know what your options are. To make matters worse, car dealerships don’t exactly disclose information about what their financing options are so that you can pick which one would be best for you. The sad truth is that most car dealerships aren’t in the business of giving you the best deal. Instead, they’re in the business of giving you the deal that makes them the most money. So read on for helpful tips, tricks, and suggestions.

Know your credit situation

The first thing we want to address here is the fact that a lot of people with bad credit seem to be really oblivious to the reality of their situation. You can’t be out there looking for financing and not even know what your credit score is and what your credit report looks like. If your credit score is not good (what’s a good credit score?) and your credit report has all kinds of blemishes on it, then you’d better have something to counter that (like a big down payment, a recent promotion and pay raise, a change to a higher paying job, or debt that has recently been paid off), or else you won’t stand a chance. The difference in finance rate for a person with a 585 credit score vs. a 595 score can be a full point in interest. That could result in thousands of dollars of additional expense over the life of a loan. We have seen a lot of these advertisements for bad credit no money down auto loans, but these are very unlikely. So the first thing you have to do as a borrower is to keep your expectations at a realistic level and if possible, take steps to fix your credit before looking for a loan.

Bad Credit Auto Financing Options

The second step is all about securing the financing. One option is to go to car dealerships that specialize in processing loans to people with bad credit. As you can expect, they know their client base and will be moreflexible when setting up the loan requirements and/or payment plans. The downside of it is that they know that you’re (to them) a higher risk, so they will compensate that by charging you a higher interest rate than traditional banks would. Of course, that’s sort of a non-issue when you consider that traditional banks would probably not even grant you the loan at all. Another possibility is websites that cater specifically to car buyers with bad credit. Find a couple of those, submit your information, and look at the offers they give you. Make sure you compare those to what you can get from local banks when you visit them as well. Speaking of local banks, some of them will be willing to look at more than just your credit score when giving out loans. For example, if it’s a bank you have a long-standing relationship with where you’ve paid off other loans before, they’ll be more lenient. The real benefit of shopping around is that you know before you go to the dealership what your financing situation is. There are no mysteries, and you have a better chance to get a good interest rate. If you’re buying a car with bad credit and you don’t look at all available options, you’re likely costing yourself thousands of dollars.

Dealer Financing

If you’ve secured financing outside of a dealership, then all you have to do is look around and make sure you get the best car your money can buy. At this point, the dealership has nothing to do with your financing. Now if you’re going to get your financing from a dealership, then you need to do a little comparison shopping by visiting them and letting them know what you’re looking for. It will also give you a feel for their flexibility or lack thereof. Go with the one that gives you the best “vibe”. We know that’s not a very scientific measure, but it’s one of those things you will know once it’s there. Your dealership of choice will then want to start analyzing your application. For them to do that, you will be asked to bring in copies of personal documents such as a paycheck, drivers license, electric bill, phone bill, or other bill that validates employment and your residential address. In addition to these items you’ll need copies of a bank statement, car insurance, and personal references. In some cases with car shoppers that do not have a personal checking account, some lenders will accept a debit card account.

Down payment

Clearly state how much of a down payment you can bring. Like we said earlier, it’s almost guaranteed that you will be asked to put some money down. By looking at your financials and the amount of money you can put down, the dealer can decide how much money they’re willing to lend you and at what interest rate. Often, people with bad credit will point out that they don’t have much available money to put down towards a car. But for any given car, increasing your down payment means that the lender has to lend you less money, so his risk is reduced.

Interest rate and refinancing

Speaking of factors, one of the most important ones is the interest rate. It’s not uncommon for your interest rate to be high initially. It reflects the fact that the creditor sees you as a high risk. It’s also not uncommon for them to put you in a program where you can refinance your car after 12 to 24 months at a lower interest rate. It is because if you have been making regular payments over this period, your credit profile has probably improved, which makes you eligible for a lower interest rate.

In closing, remember that there are no magic bullets. Putting this information to work can help you successfully buy a car even if you have bad credit, without getting fleeced in the process because if you have bad credit or poor credit, the last thing you need is another debt or payment you can’t handle.