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How to Get a Car Loan with Bad Credit

Car loans can be complicated, especially if you’re not prepared or if you don’t have good credit. Having good credit plays an important part in getting the most favorable terms on your car loan. If you don’t have good credit, not only is it difficult to get a car loan, it is near impossible to get a good one.


However, if you do have less than stellar credit, don’t lose hope. You still may be able to get financing for the vehicle you want.  In fact, what you might consider as bad credit may still get you a deal good enough that you still have some funds left over at the end of each month. Here are a few strategies that you can use when you’re looking for a car loan in general and with poor credit.


Strategies to keep in mind when buying a vehicle:


  1. Research the vehicles that interest you and start with the one that most fits your needs.
  2. Don’t move down your list until you’re absolutely sure your first choice is not attainable, due to availability or financing issues.
  3. While it is easier to shop near home, look at dealerships in various locations as well as the different tax rates in nearby cities, a vehicle that costs $200 more at certain dealership is worth looking into if buying there saves you $300 in taxes.
  4. Ask for help when you feel you need it, from friends in the industry or finance experts. Several companies have buyer assistance programs, AAA being a prime example.
  5. If you know you are susceptible to sales pitches or uncomfortable about the process, have someone go with you. You will be less likely to be pressured into making a decision you will regret later.
  6. Don’t just look at the amount of the monthly payments, consider the total amount of interest you will pay, the term (length) of the loan, any fees you are having to pay. The monthly payment is just part of the agreement.
  7. Be wary of any dealer add-ons. They may be great options for the dealer since they increase the dealer’s profits, to you they may just be an unnecessary additional expense.
  8. Read any agreements thoroughly, if you don’t understand something, have someone you trust read it and explain things to you.


Overcoming poor credit:


  1. Wait to make the purchase

If possible, keep driving the car you have while improving your credit score.  Make all your payments on time.  While you’re waiting use the funds you were planning on using for your new car payments to pay off more of your existing debt, or to…


  1. Make a larger down payment

The larger the down payment you make, the less you must finance.  This not only lowers the amount of interest you will pay (regardless of the rate), it may also lower the interest rate since there is less risk for the dealer / financer.  Another way to increase your down payment is to…


  1. Sell your current vehicle privately

Since the dealer will be looking to sell your old vehicle, you will, in most cases, be able to receive more funds in a private sale than a dealer will credit you in trade-in value.


  1. When it comes to “buy here, pay here” dealers, tread lightly

This type of dealer usually has on-site financing to offer, often with less stringent qualifications and sometimes without even a credit check.  However, many also have a reputation for selling poor-quality, overpriced vehicles and preying on customers with bad credit.


  1. Get pre-approved

Find out from your bank or credit union what the process is to get pre-approved for a vehicle loan and take those steps.  This will save you from wasting time at dealerships looking at cars that you will not be able to purchase at this time.