7 Tips to Help You Find a Car Loan With Bad Credit

Damaged credit can significantly impact your financing opportunities. A mortgage lender may laugh at your application. And if applying for work in the finance industry, some employers will not consider your application upon checking your credit score. But while bad credit is the kiss of death in many situations, it’s not entirely impossible to secure an auto loan on damaged credit. Opportunities are scarce, but definitely available.

Need a new set of wheels but don’t think you can qualify for financing? Here are nine steps to help get your foot in the door.

1. Pick your lender carefully

Don’t think you can get financing from any type of lender. The truth is that lenders offer varying finance programs and they cater to different types of borrowers. One auto lender may provide financing to people with credit scores 620 and below, whereas another lender requires a credit score of 650 and higher. Order your score from Myfico.com and then check with multiple lenders to see what type of financing they can offer people in your credit range.

2. Shop around and compare loans

Subprime auto loans are by no means cheap, and if you skimp on comparison shopping, you could end up paying way more than necessary. While you shouldn’t expect a prime rate – which can be around 4% for a new car – you shouldn’t expect ridiculously high rates either. Some auto lenders charge as much as 18% or 20% for subprime auto loans, but you can find rates as low as 13%.

3. Show that you can pay for the car

While credit carries a lot of weight when applying for a car loan, some lenders care more about your ability to pay than your credit score. If you can show them the money, you can possibly obtain a loan.

Not to say that everyone with a job will qualify for an auto loan. But if your income is consistent and you’re working toward improving your credit – demonstrated by no late or skipped payments in the past 12 months – this looks good from a lender’s standpoint. Come prepared and bring along the most recent copy of your paycheck stub or a year-to-date income statement if you’re self-employed.

4. Explain yourself

If applying for an auto loan directly with your bank or credit union, the person who receives your application may also be the decision maker or underwriter. This works to your advantage because you’re given a platform to explain your low credit score. Maybe your credit score took a dip after a job lay off, divorce or illness. Some lenders are sympathetic to these types of situations. Explain yourself in writing and they may happily give you a second chance.

5. Shell out the cash

The more cash you give the lender as a down payment, the less you have to finance. And since you have a higher stake in the automobile, lenders know that you’re less likely to default on the loan. Regardless of credit scores, many lenders let borrowers sign and drive without a down payment, as long as you have insurance on the car. But if you want to secure the best rate with bad credit, put down at least 20%.

6. Go with your current lender

The odds are in your favor if you’re currently financing an automobile. Talk to your existing lender to see if they’ll give you another loan despite a low credit score. This shouldn’t be an issue if the monthly payment on the new auto loan is nearly identical to your existing auto loan. In this case, you’re not taking on new debt, simply replacing your existing debt. Of course, this method only works if you’ve maintained a good payment record with your lender.

7. Find a partner-in-crime

A cosigner is particularly useful when a terribly low credit score prevents any type of loan approval. The cosigner steps in as backup and takes responsibility for the loan if you default. It’s a risky pact, but the loan will not have a significant impact on the cosigner’s credit score unless you default or make a late payment. Pay your bill on time each month and you’ll maintain a good relationship with your lender and cosigner.

  • If you do get lucky enough to get a loan with bad credit you will still be paying much more due to high interest rates. The best avenue is to fix your credit… not to find tricks for getting loans despite your credit. Try Lexington Law. They have been around since 1991 and have helped over half a million people. I have heard a lot of good things.