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Can I Get an Auto Loan With Bad Credit and Other Questions Answered

If you’re like most people, you need a car to get to where you’re going. However, like many people (yes, you’re not alone), you might not have the best credit rating. That’s where bad credit car loans come in. A bad credit car loan, sometimes referred to as a subprime loan, is available for individuals that need a loan but have a color credit history that puts them at the lower end of the average.

If you thought it was impossible to get a car loan, think again! Car dealers get that not everyone has a perfect credit score, and many are willing and able to work with drivers from a variety of financial backgrounds, including low or even no credit scores. Wondering if you qualify? This is a valid question because sometimes you come across a dealer that doesn’t offer the flexibility of a bad credit car loan, and you might have heard “no” more often than you like. So if you’re interested in getting behind the wheel and a car loan is what you need, then read on to learn about credit ratings, subprime loans, who qualifies, and more!

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What Is a Low Credit Rating?

Let’s jump into it, do you have a low credit rating? Well, a credit rating, or credit score, in general, is based on a combination of the FICO model and the credit bureau. It is used to assess a person’s lending potential and if they are considered risky or not. A number of factors can affect your credit score, such as current debt, unpaid or late bills, and the overall length of your credit history. If you get a black mark on your record from bankruptcy, for example, that can lower your credit score for up to six years after the fact, making it challenging for drivers to get a loan even if they are employed with plenty of savings.

So you’ve been told you have low credit; what does that mean? The scoring they use for credit ratings falls between 300-850 for the three major credit bureaus. Many drivers tend to fall in the average range of between 670-739; this is considered a respectable rating. The higher your rating goes more options you have for a loan. A high credit rating tells lenders you’re a responsible borrower and that you’re likely to pay your loan back on time without issues. The lower the rating, the more risk a lender is taking. So if your credit score happens to fall around 600, you’re on shaky ground, and 500 and below, you’re considered a risk. This often means fewer finance options with higher interest rates.

Will I Have a Low Credit Rating Forever?

If the interest rates for a bad credit car loan are too high for you, don’t stress, there are ways to work on your credit score and slowly build it back up over time before reapplying for an auto loan. Simple things you can do on a regular basis to boost your credit rating include:

Pay Bills On Time: Staying updated on payment schedules is very important. Paying off regular monthly bills like power and water bills is a great first step to boosting your credit score.
Get A Credit Line: Having open lines of credit without using them is a great way to show you are a responsible borrower. If you do happen to use your credit card, paying it off right away is a great indicator that you take your finances seriously and have the ability to repay debt. If you have cards but never use them, keep them open anyway. Having a healthy, established credit line is a great sign for potential lenders.
Work On Debts: Work on paying off debts and avoid creating new ones. Whether it’s a student loan or a house payment, getting rid of debt will bump up your credit score in no time.
Stay Employed: Having a steady income and a bank account shows you have money coming in, and you’ll have money in the future.

While improving your credit score won’t happen overnight, taking small steps every day is the right way to go if you hope to achieve an overall healthier credit rating and better terms when you apply for your next auto loan.

An approved stamp is shown on a car loan application.

What If I Need an Auto Loan Now?

Maybe you don’t have time to build your credit and need an auto loan right now. It is possible for drivers with a low credit history to secure a loan. To make the experience as positive as possible, make sure you research dealers in your area and select one that is experienced when it comes to working with drivers who have a poor credit history.

When applying for an auto loan, also make sure to keep things realistic. You want a practical and reliable car, but make sure it’s one that is within your budget. If you’re shopping for a vehicle and you have a low credit score, it’ll be even harder to secure a loan if you’re trying to finance a car that is way outside of your budget. Keeping your expectations realistic and getting a car that is dependable rather than flashy is a great way to get the results you’re after. Or, you can get approved for a loan first and only shop for cars within that budget after so you don’t accidentally fall in love with something you can’t afford.

Also, make sure you get an estimate of what the payments will look like to ensure that it falls within your monthly budget, and it’s something you’ll be able to keep up on. Defaulting on a car loan is not a great way to improve your credit rating. Having money saved up for a healthy downpayment can also help lower the amount you need to borrow, which is another way to ease the process along and ensure you get the best rates possible for your situation. In fact, you should be prepared to make as big of a down payment as you can either way because many lenders will require more cash upfront because you are considered a higher risk for repayment.

What Kind of Loan Can I Get With Bad Credit?

Now down to the loan part. If you have poor credit, you are going to be offered something called a subprime or bad credit car loan. Subprime loans tend to have higher interest rates because of the risk associated with the borrower’s credit history. A low credit history says you’re more likely than most to default on your loan. To make up for this risk, lenders charge more interest, plain and simple.

When applying for a subprime loan, there are a number of things you can do to show you are a responsible borrower despite any black marks on your credit history. Having a family member with a higher credit rating cosign with you or offering a larger down payment than required are positive signs for lenders and may help lower the interest rate. Having bank statements and paycheck stubs demonstrate you are employed and have a steady income, and will therefore be able to make the repayment schedule as laid out in the loan’s agreements.

If you are really in need of a car, a subprime loan might be the best solution to your dilemma. Being active when it comes to improving your overall credit score while staying on top of your auto loan repayments are all great ways to work towards more financial freedom in the future. For example, you might be able to refinance your loan later on after your credit score improves.

A person is shown holding keys to their purchased vehicle.

Stay Positive and Do Your Research

Getting into your next vehicle doesn’t have to be stressful, and getting a subprime loan to help you achieve your goals doesn’t have to be either. If you’re facing a poor credit rating at the moment, it doesn’t have to stay like that. Being proactive and dedicated to paying your debts are all great ways to improve your future borrowing choices. Choosing a qualified dealer that works with drivers who have low credit scores isn’t as tough as you would think. Believe it or not, dealers want to help you get into a great, reliable car, so offering subprime loans is something many often do for drivers who have less than a perfect credit score.

Drivers, if you have a bad credit score, don’t worry; there are lenders and dealers out there willing to work with you! Doing your research and knowing what to expect is a great way to ensure success the next time you visit an auto dealer. When you need a car but have a low credit score, it might feel impossible to buy a decent-quality car, but it doesn’t have to be. Knowing where your credit rating falls and your options is the best way to get on the road to success when it comes to shopping for and purchasing your next vehicle.