Having poor or little credit history can make the car-buying process incredibly frustrating – you might even feel like buying a vehicle is beyond your reach. Thankfully, that is not the case, and there are certain things you can do and keep in mind while looking at your bad credit car finance options. In general, your best bet is to do as much research as you can and have a good sense of where you’re at and what you’re dealing with.
Knowledge really is power when buying a car – not only when you’re trying to figure out what model would be best for you, but also how you can pay for it. The more you know ahead of time, the better prepared you will be when you’re at a dealership or working with an online car retailer. You should know what your own situation is like: know your credit score, know what’s impacting you negatively, and figure out anything you can do to help your credit before you look for financing.
It’s also very important that you know your options when looking for bad credit car financing since you don’t want to miss your best choice for a loan. Perhaps the most important tip, however, is to know your limits. Never agree to any kind of financing that pushes you to the edge of what you can afford, or beyond it.
Tip #1 – Know Your Credit Score
I know that financing can be scary – dealing with money when you’ve had problems with it in the past, or little experience with financial planning is rough. If you know you have bad credit, but you’re not sure exactly where you’re at, then that can be the scariest situation of all. The best way to handle it, however, is to find out your credit score; the best way to deal with a fear of the unknown is to eliminate the unknown.
There are numerous services you can use to find out exactly what your credit score is, which can help you before you start looking at any bad credit car finance options. You might even discover your credit isn’t as bad as you thought, and that much of your worry was all in your head. And even if your credit really is that bad, at least now you know where you stand and where to go from there.
Tip #2 – Work on Your Credit
Where to go, of course, is toward better credit. Having good credit doesn’t just happen because you want it; you have to work at it. There are an incredible number of resources online that can help you get your credit back in better shape and they really work. It’s not an overnight solution and it will take time, but even a couple months can make a difference.
Tip #3 – Start with Your Bank
If you are already a member of a bank or credit union, even if you only have a checking account, then that’s a great place to start. Bad credit car financing is difficult because lenders don’t know you – to them, you’re only a number, and that number represents a risk. That is why they will either not give you a loan, or they’ll give you one with very high-interest rates to cover their own butts if that loan goes south.
Your bank or credit union, however, does know you. You already have a relationship established with them, especially if you have been a member for many years. So, one of the best places you can start, when looking for bad credit finance options, is with your bank. They might still say they can’t give you a loan due to your credit history, but you risk very little in asking.
Tip #4 – Look at All Your Options
If your bank turns out to be a bust, then don’t get discouraged, you still have options available to you. Consider each of these options carefully and look at any kind of loan or financing they are willing to offer you. The best thing you can do is look at multiple offers in detail, to compare them and figure out your best choice. You want to do this is a short time, however, as applying for loans can bring your credit down (yeah I know), and make it harder to get a loan.
Just because one bank refuses to give you a car loan, doesn’t mean another one will so try multiple lenders to see if they will work with you. Should standard banks ultimately fail, then consider a credit union, especially if your employer is part of one, as they are known for working with people who have poor credit. From there, you can also look at second-chance lenders that specialize in helping people that need bad credit car financing.
You can also look for a dealership, or online retailer that offers Buy Here Pay Here financing. In these situations, the dealer acts as the lender for you, so you don’t have to go through a third-party lender. These dealerships often work with people who have poor credit, so it can be a great way to get bad credit car financing. One thing to keep in mind, however, is that not all BHPH dealers report their accounts to credit bureaus, so ask about that – otherwise, you can make payments on time for several years without it helping your credit at all.
Finally, consider asking a close friend or family member to cosign on a loan for you as a way to help you get bad credit car financing. By cosigning, they essentially say that they know you will make all payments on time, and if you don’t then they are also responsible for the loan. A cosigner with good credit can be a huge boon when you’re getting a car loan – just remember that they put themselves on the line for you when they do this. Do not, under any circumstances, make late payments, fail to make payments, or let the vehicle be repossessed; doing so will negatively impact their credit and can be the end of a great relationship.
Tip #5 – Know How Much You Can Afford
Ultimately, this is one of the most important things to keep in mind when looking for bad credit car financing – or any kind of financing, really. Before you start the process before you call around to dealerships before you go to banks or look at different lenders – before any of that, figure out what you can afford. There are a couple of different ways to approach this, so consider both methods and see where you land.
Most experts suggest your vehicle expenses each month, including your car payment and insurance, should never be more than 10% of your gross income. Gross income refers to how much you make before any taxes or expenses – it’s what you report at the end of the year on your tax return. So, for example, if you make $3,000 every month before taxes, then your car payment and insurance shouldn’t be more than $300.
You can also look at your finances each month; consider how much you make after taxes, look at all your bills and expenses, and figure out what you have left at the end of the month. Once you know what your finances look like, then figure out how much you can reasonably pay for a car loan each month. No matter how you do it, figure out what you can realistically pay each month without giving yourself sleepless nights or making late payments, and stick to that. Never agree to a car payment that is more than you can afford, or you’re setting yourself up for disaster.