Having bad credit does not mean you can’t get a car loan. The most important thing you need to do in this situation is do your research and make sure you shop around to find the best loan. You also need to avoid some potential pitfalls. The following are several important tips to help you get a car loan with bad credit.
1. Order Your Free Credit Report
It is important to know exactly where you stand. You are eligible to order a free credit report from the three major credit-reporting agencies once a year. Go to annualcreditreport.com to order your free credit reports. Check them to ensure there are no errors. If there are any errors make sure to have them corrected. If you can hold off on a car loan, you may also want to see what you can do to raise your credit score before applying for a loan. Once you know what your score is, you will have a better idea what loans you qualify for.
2. Shop Around
Different lenders have different criteria to qualify for loans and offer different interest rates and loan terms. It definitely pays to shop around, especially when you have bad credit.
3. Try Local Lenders
Check with your bank or credit union where you have a checking account or loans. If you have an established relationship with them, they may be more willing to work with you. Also, check to see if your insurance company or employer offers auto financing. Other local credit unions are also another potentially good source.
4. Check With Auto Finance Lenders
Instead of checking for low credit lenders, look for sources that specialize in car loans. That can include online lenders, regional and local banks as well as national banks.
5. Watch Out For Add-Ons
As someone with bad credit, you have to watch out for lending contracts that are full of nonessential services and goods. Do not agree to a loan that is contingent on you having to purchase add-ons such as aftermarket services or extended warranties.
6. Watch Out For the Yo-Yo
If you obtain your financing through an auto dealer, you need to ensure the terms you are agreeing to are final, rather than conditional or contingent before you sign on the dotted line. Sometimes buyers will be told weeks or months later that there has been an increase in their interest rate or required down payment. This is sometimes referred to as a yo-yo scam.
If you follow the advice in the above tips, it is still possible to qualify for a car loan when you have bad credit. Just be prepared to do your research and shop around.