Having a car or other type of vehicle is a requirement for most people, especially if we have a family or a job that requires us to travel long distances. While it is entirely possible to save enough money to buy a car in cash, most people need a car loan to pay for a car. Most people think that they need to have an excellent credit score to get an auto loan, when in fact, there are many auto loans available for those with lower credit scores. Finding and getting approved for an auto loan when you have a low credit score can be a little difficult but not impossible, so don't be disheartened during your research.
Here are some important things to keep in mind if you are looking for an auto loan but have a low credit rating.
How To Find An Auto Loan When You Have Bad Credit
The first thing you should do before you start looking for an auto loan is to check your own financial situation deeply. This means that you should request a copy of your credit report. Having a good understanding of your financial situation will make negotiating your car loan much easier. If you think you have a low credit score but don't know exactly where you stand, you will be more likely to pay more for a car assuming you are offered the best rate you could get. Don't get caught by car dealers!
Once you get your credit report, go over it to make sure the information is correct. It is possible that an error may creep in and lower your credit rating. Give yourself at least a month between the time you request your credit report and when you want to start looking for a car, that way you will have plenty of time to correct mistakes.
Now it's time to start looking for an auto loan that best suits your needs.
The most important thing you can do while shopping for an auto loan is to set yourself a deadline of two weeks and make sure you don't exceed this time limit. The reason for this is that each time a dealer requests a copy of your credit report, this request presents itself as an investigation into your credit report. These inquiries can affect your credit score if the inquiries are repeated often. But if all of your auto loan requests happen within a short period of time, all of those requests will appear as one investigation.
Finally, do not accept a price or interest rate that does not seem fair to you.
How to Save on Your Auto Loan
Unfortunately, if your credit score is low, you will likely have to pay an above-average interest rate. But, having a low credit rating does not mean that you will have to ruin yourself to complete your auto loan payments. Here are some tips to help you save money on your car loan.
Choose a short-term auto loan: You may be tempted to choose a term of 5 years or more for your car loan in order to decrease the amount of your payments, but it is much more economical to choose a 3-year term. The majority of loans of 3 years and less have lower interest rates and therefore you will save on interest since the loan will be reimbursed more quickly.
Consider a new vehicle: If you can, choose a new vehicle and not a used car as these generally come with more competitive rates. Obviously, this is not always an option for some because even if the interest rates are lower, the price is definitely higher. If you find a special offer on a used vehicle, weigh the pros and cons and don't hesitate if this happens to be the best deal for your situation.
Choose the basic model: Your dealer will probably try to convince you to make several additions to your car, explaining that you will only have to pay a few extra dollars each month. Don't be fooled, if you are looking to save money, keep your original plan. Those extra few dollars each month will start to add up and your payments could become too difficult to manage.
Consider a private loan: Having a low credit score does not mean that you need to get financing from a dealer. In fact, you will likely be able to get a better rate from a private lender.
Pitfalls to Avoid
Seeing that your credit rating is low, a dealer might try to take advantage because he knows that you are more desperate to be approved than someone with a slightly higher credit score. Here are some auto loan pitfalls that you should be aware of so that you can avoid them when shopping for an auto loan.
Upselling: The most common pitfall in a dealership is upselling. Your dealer will probably try to encourage you to take the more expensive model and make you spend more money, but you are better off staying firm and moving forward with your original plan. Do not accept an offer that you can no longer afford.
Yo-yo financing: We call yo-yo financing the fact that your dealer allows you to bring the vehicle you have chosen before being officially approved for a loan, then calls you back a few days later and explains that your loan request has been rejected. They have now trapped you with a new price and a new interest rate in the hope that you will not notice the increase.
Loan repayment: When your dealer tries to increase the value of the loan by adding additional costs without telling you. They will offer you a higher price in the hope that you will not realize what they are doing and pay for it anyway.
“Buy here, pay here”: These types of dealers will offer you a loan regardless of your credit history and rating. Although it may sound easy, there are a few drawbacks that can end up costing you. Not all dealers who offer “buy here, pay here” conditions are bad, but be aware of what interest rate you can get from your bank to make sure you don't get caught with a far too high rate.
Auto loans are not just for those with high credit scores. Having a low credit score should not discourage you from buying a new car. However, make sure you follow the steps carefully and keep yourself informed about your own financial situation and you should be able to get the car you want and need.
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