Preparing to Apply for an Auto Loan with Bad Credit
When you’re applying for an auto loan bad credit can really hold you back. Many lenders will turn you down, and the ones who will approve you for a loan will do so at high interest rates. Fortunately, there are things you can do that will make it easier for you to get a loan. Use the following suggestions to improve your chances of getting a loan.
Check Your Credit Report
Mistakes happen. Your credit report may show an outstanding balance, accounts you never opened or excessive late payments when you know you paid on time. Those with bad credit are often reluctant to take a look at their credit reports because they’re scared of the truth. However, the truth might be a lot better than you realize. Fixing any mistakes on your report can instantly boost your credit score high enough to qualify for a loan.
It’s important to be realistic about how much you can afford to spend on a car. Auto loans typically spread the payments out over a period of three to five years, but the longer you pay, the more interest you pay overall. Start by determining how much you can afford to spend on a used car, then look at an auto loan calculator to find out how much you can borrow. Only look at cars in this price range. This might mean settling for a less-than-ideal car for now, but the car loan can help you build up your credit so that you can afford something better the next time you want to buy a new car.
Save a Down Payment
A solid down payment shows lenders that you can be responsible with your money. It helps offset the negative effects of the low credit score. In fact, many lenders have minimum down payment requirements before they’ll consider lending you money. It’s smart to have at least 10 to 20 percent of the cost of the car as a down payment.
As you apply for the auto loan, lenders might want to see copies of tax forms, income stubs and bank statements. This helps prove that you have the money you’ll need to pay the loan back. It’s helpful to have all of these things handy at the time of the application to streamline the process. This way, you won’t have to waste time looking around for the right documents.
For many people looking for an auto loan bad credit stops them applying for some of the best deals. You may think that your credit is so bad that you can only get a loan from a “buy here pay here” dealer, but you don’t know this for sure until you’ve had a few rejections. Start by applying for a car loan through your bank or credit union. Then apply to a few other places to compare rates. As you look at different loans, be sure that you’re looking at the same term. A longer term might mean lower monthly payments, but you’ll pay more over the entire course of the loan.
You can qualify for a car loan even if you have bad credit. The key is to shop around and show the lender that you’re trying to become more financially responsible.