What to Expect if You Have Bad Credit When Applying for a Car Loan

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Just because you have bad credit doesn’t necessarily mean you can’t get a used vehicle with financing, but it will affect the terms of your loan.

Millions of people face this situation every year – How to buy a car with poor or bad credit? – and what to expect when trying to purchase a used vehicle and if they’ll qualify for any financing options.  In fact, at the end of 2017, 1.24 million car loans were offered to customers with subprime credit scores – 649 or worse for Vantage Score and 669 or worse for FICO.

What To Expect If You Have Bad Credit

Many dealerships are unwilling to help customers figure out financing options. At that point, the customer should move on and find a dealership that will.  There are numerous used car dealerships who do not work with financing, simply because they haven’t invested the time and efforts into creating relationships with leading lenders.  At Trust Auto, we work with major banking institutions in order to offer an appealing financing option for 85% of our customers.

Expect Higher Interest Rates

People with bad credit are still able to purchase decent used cars, but it will affect the terms of their loan and financing options available. And, the lower the credit score, the higher the interest rate will be, since you are considered a higher risk  of default than people with outstanding credit scores, who are rewarded with lower rates. While it may not seem fair, it’s a way for banks and lenders to protect themselves.

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To lower your interest rate, it may be helpful to offer a substantial down payment. In fact, many lenders may require a larger percentage down payment to decrease their risk of lending you money. A larger down payment will also reduce your monthly payment, so it can be beneficial to save up a sizable amount of money before shopping for a new vehicle. Not only that, but by offering a larger down payment, you will end up paying less in the long run, since you will pay less interest.  It’s something to consider if you have bad credit and are looking to purchase a used car.

Know Your Credit Score

Before you ever call or step foot into a dealership, it will help if you already know your credit score.  This reduces the risk of the dealership lying to you, but it will also give you an idea of what kind of options are available.  However, there are some credit situations that no lender will work with – many pre-owned car dealerships won’t accept credit that is lower than 435. In the event that you have extremely poor credit, work on improving your score before buying a new car.  This means lowering the amount of debt you have (pay off credit cards, any outstanding balances, etc.) and making payments on time.

Have a Reasonable Budget In Mind

Make sure you know what is an affordable monthly payment before agreeing to any financing option and locking in any interest rates.  This will also give you an idea of what cars are manageable and what cars are out of your price range before you fall in love with a luxury vehicle that costs more than you can afford. Look at your monthly bills, average used car loans, and how much you can afford before setting your sights on any used vehicle.  This will make your experience at any car dealership more meaningful and worthwhile.

Consider A Co-Signer

If the lenders have concerns with a customer’s credit and risk they pose, it may be required to have a co-signer on your loan.  In some cases, having a co-signer may allow lenders to provide you with a lower interest rate. With that in mind, the co-signer should know their responsibilities to pay the car loan in the event that your account is delinquent.

Of course, many lenders look at more than just your credit score when determining the kind of loan option they want to extend to customers with bad credit.  They will consider your employment history (stability, length of employment, etc.), gross income (to ensure you are able to make timely, monthly payments), and a variety of other factors.  Providing documentation of these financial factors may be required, so be prepared with the proper forms and documents.

Trust Auto takes the time to with with all customers to determine a finance option that is agreeable to all parties and makes an effort to find available vehicles for every budget.  They work with some of the leading lenders in the area in order to provide a variety of finance options. To see the full list, click here.

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