If you want to buy a car but your credit is sub-par, you're not alone. In fact, according to Experian research, non-prime, subprime and deep-subprime buyers took out more than 34 percent of all new auto loans in the fourth quarter of 2013, an increase from 32.8 percent one year prior. Fortunately, a less-than-stellar credit rating doesn't mean you can't snag a quality vehicle. In fact, there are plenty of tactics that can help you to get the loan you need. More and more lenders are willing to work with borrowers who might be considered "high-risk."
"Contrary to popular belief, there are a number of reasons why a lender would help somebody with a troubled credit history to buy a new car," explained Edmunds.com Consumer Advice Editor Ronald Montoya. "If you do your credit homework, shop within your price range and make all of your payments, you'll not only improve your credit score but you'll also practice positive finance habits that will serve you well for years to come."
Here are a few tips for getting the most out of your loan and car purchase despite bad credit.
Determine where you stand
First, it's crucial to figure out just how bad your credit rating is. As these scores are continually changing, you'll want to be sure you have an up-to-date report. There are plenty of sites, such as FreeCreditReport.com and AnnualCreditReport.com, that offer one report free of charge. Edmunds explained that looking over this report will give you insight into any specific risk factors that you may need to address, whether an unpaid fine or a debt from a retail charge account. The source advised taking care of this a minimum of three months before you're hoping to buy a car. Resolving these issues well in advance will definitely translate to a better offer with lenders and at dealerships.
Do you research
There's a greater chance you might get taken advantage of if you don't get a grasp on the current market. That's why Consumer Affairs recommended using the loan calculator on MyFICO.com. This tool will give you average car loan interest rates in real-time, which will help you to determine whether a finance manager or lender is giving you a good deal. The source noted that many times, dealers may demand an unreasonably high interest rate, especially if the buyer seems desperate. The more knowledgeable you are about typical interest rates for your score, the lesser the chance that you'll be tricked into paying more than you should.
Once you know full well that your credit is less than ideal, it's imperative that you maintain a practical mindset in regard to buying a car. Auto Trader explained that it's best to focus on your needs as opposed to your desires, as it's easy to get carried away looking for features and frills that simply aren't necessary. A car that gets you from A to B is the ultimate goal, and even if you do get approved for a loan on a model that's a bit outside your budget, that doesn't mean you should purchase it. You want to make sure that whatever car you choose, you can make loan and insurance payments in a timely fashion and additionally, can keep up with all essential vehicle maintenance. It's inevitable that your car will need a tune up or auto repair once in a while, and it's critical to have the funds for those instances.
Best Auto Lenders pointed out that a used car is a great option if you have bad credit. There's a higher likelihood that you'll get a car loan for a used vehicle, and typically, the loan is far more affordable.