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How To Get A Used Car Loan With Bad Credit

How To Get A Used Car Loan With Bad Credit

Having bad credit limits a consumers ability to get loans for mortgages and automobiles in addition to affecting possible employment or renting an apartment. A credit history shows and persons financial responsibility and how they behave managing money and adhering to personal obligations. Attempting to get a used car loan with bad credit will take preparation to be successful. Here are some things to keep in mind when looking to purchase a used automobile with a questionable credit history.

Explain What Happened

First, get a copy of your credit report from one of the three major credit bureaus. Federal law requires Experian, Equifax and TransUnion to provide one free credit report every 12 months to consumers. Once you know what is on your report report you can work with an auto dealership or lender to explain certain black marks. If you have a charge-off account four years earlier resulting from a divorce then this is something that can be easily explained and understood by a concerned lender. If however, you have numerous missed payments in the last 12 months then that might not go over so well.

Clean Up Your Credit

If your current automobile need replacing in the near future then take steps now to start cleaning up your credit. Make payments on time and pay down existing debt to lower your debt utilization ratio and show a pattern responsible money management. An auto dealer or lender like a bank credit union will be most concerned that if a loan is extended you will be able to make payments on time for the length of the loan. If you can show a recent history of doing just that then you stand a better chance of getting a used car loan with bad credit.

Make A Larger Down Payment

It is obviously in a dealerships best interest to sell automobiles if at all possible even to individuals with questionable credit histories. If you walk in with a substantial cash down payment it is more likely you will successfully receive financing to purchase a used vehicle. Buying a $12,000 vehicle and putting $2,000 in front of a car salesperson will probably tip the scales in your favor than if you sit down empty-handed. This will show you have access to some sort of income and are able to save for a down payment.

Accept Higher Interest Rates

It is virtually guaranteed that you will receive a higher interest rate on any loan you take when financing a used vehicle. Most automobile loans for individuals with bad credit will range from 12% to 24% due to the higher level of risk assumed by the lender. Showing a responsible payment history and putting money down may get you approved for a used car loan but it doesn't guarantee a low interest rate on the amount financed. While the terms may not be great, if you can get a used car loan, even a higher interest rate, it will be a great step towards rebuilding credit.

Pick The Right Dealer

Auto dealerships come in all sizes from large to small and corporate to individual. If you want to increase your chances of getting a used car loan with bad credit pick an auto dealer which advertises for this particular target market. Radio and television commercials continually advertise buying a vehicle with little to no money down and with bad credit or no credit. To increase your chances of success go to these dealer specifically since going to a high-end dealer for a luxury vehicle will likely lead to rejection.

Get A Co-Signer

If all else fails, consider getting a friend or relative to cosign an auto loan with you. This should be an option of last resort because it risks damaging interpersonal relationships. It means the cosigner is as financially responsible as yourself for repaying the auto loan. This requires a significant level of trust since it places the cosigners credit rating at risk should payments be missed or the loan defaulted on. If however there is no other way for you to get a used car loan with bad credit this may be the one and only viable option remaining to purchase a used vehicle.

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