Car loans for people with bad credit: What you need to know

Poor credit car finance may seem impossible to obtain, but it is not impossible. You still have options available even if you have poor credit, even if you have a good credit score.


Bad Credit Car Finance: How to Apply

In determining whether to give a person a car loan, lenders consider credit scores. FICO® Scores range from 300 to 850, and a score below 670 is considered fair or poor.

It is possible that you won't qualify for all loans-and that you might have to pay more for those you do qualify for-but with a little research and planning, you may be able to find one that works for you. You can improve your chances of getting approved, and reduce the amount you'll have to borrow, by doing the following:


If you can, improve your credit score

Before making a major purchase that will require a credit check, it's a good idea to get a free copy of your credit report and score. By doing so, you'll know what your credit will look like to a lender.

You can even make adjustments to your credit well in advance to increase your score before you submit an application if you check your credit well in advance. A better score may lead to better terms and a lower interest rate, which will save you money over the long run. 

You can improve your credit score by following these tips:

  • Keep your bills current by paying them on time. Paying your bills on time is one of the most important aspects of your credit, and keeping a spotless record is the best way to maintain a good credit score. Pay all past-due accounts and collections as well.

  • As much as possible, reduce your debt. Not only will you be better off financially when applying for a loan, but you'll also have a higher credit utilization rate. Divide your revolving credit balances by your total credit limits to determine your utilization ratio. Most experts recommend keeping your utilization ratio below 30% or below 10% for the best results.

  • Experian BoostTM* is a useful tool. If you use this free service to add utility bills, cellphone bills, streaming services, and other bills to your credit report, your credit score could improve instantly.


Make sure you know how much you can afford


In order to buy a car, you need to consider two major factors: how much you'll have to put down as a down payment, and how much the car will cost you monthly. The car-buying process begins by calculating your monthly payment, which includes your loan payment, insurance, gas, and upkeep. This will determine how much car you can afford. Your monthly payment and down payment will be higher if the car is more expensive.


Get your down payment secured

Typically, you need to provide a down payment when you buy a car. In addition to this payment, you will have to make a down payment on your vehicle, and the balance of the purchase will be financed over time. You can reduce your monthly payment by putting down more when you buy a car. 

An additional benefit of a larger down payment is that it reduces risk to your lender, which may enable you to secure a lower interest rate and save you money in the long run.

Learn how to get pre-approved for a loan

When you receive a pre-approval, the lender will check your credit and financial details and inform you how much of a loan they will be willing to give you. You should be able to determine what you can afford, and you won't have to worry whether you will get approved for a particular car.

When you have a preapproval letter in your hands, it will not only help you understand the vehicles that are within your budget, but it will also be useful when negotiating a good price.


Before you take out a loan, compare your options

Before applying for a loan, it's important to first shop around after you get your finances in order. Consider borrowing from a lender known for working with people with lower credit scores if you are having trouble getting approved from a conventional lender. In spite of the higher interest rate, these lenders provide loans to people with poor credit.

What are my options for getting a bad credit car Finance?

It's a good idea to become familiar with different borrowing options before applying for a car loan. Although some lenders offer bad credit car loans, others may not. The application process can be streamlined if you know how each lender works beforehand. 

Auto financing can take the following forms:


  • A captive financing program is one that is handled directly by the manufacturer. Not only do you purchase a car from a dealer, but you also finance it through the dealership. Used cars may not be eligible for this type of financing. Those with less-than-perfect credit may also be able to get these loans, since captive lenders may be more forgiving and have incentives to issue you a loan.

  • Financing arranged by the dealer: In this case, the dealer works with different lenders to obtain a loan. Depending on your application, you may be presented with several loan options from which you can choose the one with the best terms. It's a good option for those with fair credit, since your information will be shared with several lenders at the same time-including at least a few that will consider applications with imperfect histories.

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