Tips for Getting an Auto Loan, Despite Bad Credit

Right or wrong, precious few of us could survive the demands of the modern day without wheels. Sure, some of us live in big cities with plenty of public transportation. But for the rest of us, or for you city dwellers who like to escape on the weekends, having a car is pretty crucial.

Unfortunately, your credit can either help you or really hurt you when it comes to purchasing a vehicle. But, bad credit exists for many people and so there are available bad credit auto loans to help you get behind the wheel and, hopefully, back on your financial feet.

Do I Need a Bad Credit Loan?

Well, that simply depends on your credit score and personal financial situation. If you aren’t sure where your credit stands, take the time to check. Knowing your score before you even consider shopping around for a loan ensures that you can move forward with more confidence and understand your options.

Failure to know your own credit score leaves you at the mercy of lenders who could very well overcharge you. Don’t just assume that your credit is worse than it actually is.

Get the figure from trusted credit reporting agencies, like Equifax, Experian, and TransUnion, companies which are required by federal law to supply you with your credit score for free on an annual basis.

Depending on whether or not you’ve accessed your credit score before, you might not be familiar with the rating system or what the numbers indicate.

Here’s a basic breakdown which shows a numeric range and its corresponding credit connotation:

“Excellent” credit is indicated by a score of 800 or above, while “Very Good” scores are represented by any number between 750-800. “Good” credit falls between 700-750, with “Fair” considered anywhere in the 650-700  range. Anything below 650 means that your credit has taken a significant hit, with 600-650 considered “Bad,” and anything below 600, “Very Bad.”

Knowing your specific credit score is half the battle.

Check out Annual Credit Report.com in order to receive not just your credit score, but your entire credit report.

Why bother accessing your full credit report?

Because people make mistakes and you want to check for any errors or inaccuracies reported on your credit history which could be adversely affecting your overall score.

What should you do if you find errors in your report?

Take the time to report these errors to the credit bureaus so that they can be fixed, if possible.

You can even access a free explanation of your credit report one time per month so that you can review and understand what is affecting your score the most, whether it’s missed or late payments or too much debt overall. Knowing this might help you address some weaknesses and better plan for your financial future.

Something to keep in mind – a cautionary bit of advice – is that every time a lender checks your credit report, it leaves a mark called an inquiry because that’s exactly what it is. The lender is inquiring about your score, which then becomes a part of your overall credit history.

The trick to avoiding excessive dings via inquiries on your report is to keep your auto loan search within a two-week window. Generally, inquiries made within the same span of 14-45 days are counted as one inquiry.

The overall lesson from these first steps ultimately concerns strategic preparedness. You have to do some research and plan accordingly before you start exploring which loans are available to you.

Once you’ve armed yourself with your credit score and an understanding of your credit history, it’s time to shop around for an appropriate auto loan.

The Downside of Bad Credit Auto Loans

You’re considered a risk.

At least that’s what the lender sees when determining whether or not to give you a loan for the purchase of a new or used vehicle.

So, you need to go into this expecting to be hit with a higher interest rate than someone with fair, good, or excellent credit. An average interest rate for consumers with good credit falls between four and five percent.

If you have bad credit, or need a subprime auto loan, your rate will most probably fall between ten and thirteen percent.

Be careful approaching lenders so that you don’t wind up doing business with a lender who will present you with even higher rates.

It’s not all bad news. There are a few things to keep in mind which might help you save some money on your loan overall, even if your interest rate is on the higher side.

Also, the number of total reported delinquent auto loans fell during 2015’s first quarter, which has seemingly boosted the confidence of lenders in general when it comes to granting subprime loans.

But always check with your bank or credit union before you approach shaky sources like unknown or independent auto loan lenders, and avoid those that advertise themselves as specializing in subprime loans.

It’s also a smart idea to check in with your insurance company and employer to see if either one might offer auto financing options.

Money-Saving Tips for Auto Loans

How can you save money on auto loans, even when confronted with high interest rates?

First, you can elect to have a shorter term for your loan, meaning you can opt to choose a three-year over a five-year auto loan. The added upshot to a shorter term for your auto loan is that you will pay it off faster.

Granted, the monthly payments will be higher because you’re clearing the debt off faster, but doing so will save you money in the long run because you’ll be free of that high interest rate sooner.

This next tip might surprise you. Auto loans are usually cheaper for newer vehicles as opposed to used ones. Granted, if you find a great loan for a used car, go for it. But usually you’ll find more reasonable rates connected with newer vehicles that haven’t been driven by a previous, unknown owner.

Avoid any unnecessary bells and whistles. Part of a car dealer’s job is to upsell and your car dealer will likely try to sell you on additional details and features that you simply don’t need.

Even if your car dealer argues that adding this or that will only set you back a few extra bucks per month, don’t forget, time marches on and those bucks quickly multiply.

If your lender will only offer you a loan contingent upon extended warranties, insurance, after-market services, or any other nonessential add-ons, walk away.

Also, be wary of what are called “yo-yo scams.”

With a “yo-yo scam” your payments, either those due monthly or the initial down payment, increase after you’ve already purchased the vehicle. You must make sure that the loan terms are complete and finalized before you take off in your new car.

If not, the lender might increase your required down payment or inflate your monthly obligation. Consumers who fall prey to this kind of deal end up paying approximately five percent more in interest than those with solid, legitimate loans.

Research and reputable lenders are the names of the game when it comes to securing an auto loan, no matter your credit history.

“Knowledge is power” as they say, and the more knowledgeable you are about your financial reality and the process involved with finding a legitimate auto loan, the closer you’ll be to getting behind the wheel and back in control.