Good credit makes it easy to finance a new car. If you’ve had credit issues, such as late payments, bankruptcy, or collection accounts, you can probably still get a loan, but it will come at a higher interest rate. Here’s what you need to know about how to buy a car even if you have bad credit.
Reduce the Amount You Need to Borrow
When lenders review your loan application, they assess the risk that you’ll miss a payment. If you can make a large down payment, the risk is lower, which improves your chances of approval and attractive terms. If you have a car to trade in, determine the value before soliciting offers, and be ready to negotiate the best possible credit against your loan. Choosing a less expensive car can also help reduce the amount of money you need to borrow.
Get Pre-Approved
Some lenders are willing to pre-approve borrowers for a car loan. Pre-approval means a lender checks your credit and lets you know how big a loan you’re likely to be approved for. Once you have been pre-approved, you’ll have a better idea of what vehicles are in your price range, which takes some of the stress out of the process. Talk to your bank or credit union to find out if they will pre-approve you for a car loan. If your own bank or credit union can’t help, look for lenders with deals for people with less-than-perfect credit, which are sometimes called “second chance” car loans.
Be Cautious with “Buy Here, Pay Here”
When you need a car loan but are having difficulty getting financing, you may be tempted by a dealer who advertises “buy here, pay here.” This type of car dealer offers financing with credit qualifications that aren’t as strict as traditional lenders, but they sometimes take advantage of people, selling vehicles that are in poor condition and overpriced. If you’re considering this option, try to bring a friend who knows a lot about cars to check the condition carefully before making a deal.
Work on Improving Your Credit
If you don’t need a car immediately, consider working to improve your credit score before applying for a car loan. Get in the habit of paying bills on time and work on paying down outstanding debt. Another thing to do before applying for any type of credit is to review your credit reports to verify that the information on them is accurate. Mistakes on your credit report can affect your credit score, and if you find any incorrect information, it’s important to file a dispute as soon as possible.
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