You’ve entered the no-judgment zone and are about to learn a few of my tried and true strategies for securing an automotive loan, even if your credit, well…sucks.
Keep that ever-popular bumper sticker, s*** happens, and it happens to the best of us. Whatever happened to challenge your credit, not to worry. There are actually lots of bad credit car loans in Cincinnati that you can take full advantage of in order to get behind the wheel and back in control.
But, before you start shopping around, there are a few important things to keep in mind. One of my other favorite sayings is “Knowledge is Power.” So, smarten up and get serious about getting a car and getting your credit under control.
Consider: Do You Actually Need a Bad Credit Auto Loan?
Okay, you probably do, but it’s best to make sure before you start tossing numbers around or digging a hole you can’t crawl out of. First things first, take a hard and honest look at the conditions of your finances. No idea where you stand? Just convinced that the ground is shaky at best? Well, stop assuming and track down your actual credit score.
Not knowing your own numbers leaves you at the mercy of lenders who may or may not overcharge you based on your assumption that your score is far worse than it actually is.
How do you check?
Consult well-known and trusted credit reporting agencies like Equifax, Experian, and TransUnion – three of the most respected credit agencies, all required by the government to share your credit score with you for free each year.
If you’re new to the actual credit score conversation or are unsure what the numbers signify, check out this basic explanation:
Scores rated at 800 or above are indicative of “Excellent” credit. Anything between 750-800 is “Very Good.” Credit scores that fall somewhere in the range of 700-750 are considered “Good,” while “Fair” scores are found between 650-700.
Now, from there it gets dicey. If your score falls shy of 650, you’re dealing with either “Bad” or “Very Bad,” sometimes referred to as “Subprime” credit levels. Just to be more specific, the “Bad” scores live in the 600-650 neighborhood, and anything less than 600 is evaluated as “Very Bad” or “Subprime.”
This is like other “numbers” in life – you needn’t share these digits with anyone else, but you had best know where you stand before you even think of approaching lenders for a bad credit auto loan.
In addition to your credit score, you really ought to access your annual credit report, at Annual Credit Report.com.
If you have access to your entire credit report, you’ll be able to trace where your number derives from, but also uncover any possible errors that may be unfairly bringing your score down. So, read through it carefully and see if you detect any mistakes in the reporting.
Eureka! You’ve found some errors…Now what?
Contact the three credit bureaus listed above and let them know right away. If they can be fixed, your score will only improve. So, it’s worth the time to do this.
Sound overwhelming? Afraid you might not understand the report and therefore not be able to even recognize potential errors?
Good news – once a month you can access a complimentary explanation of your credit report, which will explain what factors are affecting your score, like missed payments or late payments, or too much debt compared to assets. Understanding your credit history and resulting credit score might help you correct some problematic spending or bill paying patterns.
Now, here’s some frustrating news, but I’ve got a trick to help you mitigate it….
Every single time a lender checks your credit, your credit score gets dinged. These dings are known as “inquiries,” because that is exactly what they are – the lender is inquiring as to what kind of risk you are, and each inquiry is then left on your credit history.
But, you can get around extra or unnecessary dings by restricting your quest for a bad credit auto loan to a span of two weeks. In most cases, any inquiries made within a single 14-45 day time period are considered one inquiry.
We’re talking shopping strategy here, folks. Research and planning are your friends when it comes to successfully securing a bad credit auto loan with minimal impact to your already – let’s face it – less than stellar credit score.
Okay, you’ve got your credit score, an understanding of your credit history, and a greater appreciation of what influences credit…that means it’s time to shop.
Bad Credit Auto Loans: A Cautionary Word or Two
Mincing words won’t help here. We’ve gotta face facts.
You are a risk in the eyes of these auto loan lenders. Doesn’t make you a bad person, just a bad bet as far these lenders are concerned.
So, you need to get comfy with this ahead of time and do not be surprised when you are presented with higher interest rates than someone with solid credit. For those with good credit, interest generally falls between four and five percent.
In your case, you’re likely looking at an interest rate somewhere between ten and thirteen percent.
But, there is always a bright side (right?) and in this case, the number of auto loans reported as delinquent declined during the first quarter of this year, which means that lenders are feeling more confident about taking a chance on a risk.
That said, you’ll want to only approach reputable institutions and avoid no-name independent auto loan lenders, especially those advertising their specialty as “subprime loans.”
Stick with established banks or credit unions, particularly those that you already have a relationship with because those folks will be better acquainted with your financial situation and struggles to begin with, and won’t be interested in capitalizing off your less-than-ideal credit situation.
Also, consult with your insurance company and your employer because sometimes they also offer auto financing options and deals on auto loans.
Saving Money with Your Auto Loan
It’s a vicious cycle, right?
You’ve got lousy credit, so you’ll be penalized with higher interest rates. How in the world will you save money on your auto loan if your interest rate is astronomical?
Well, I’ve got a few strategies to share and, hopefully, help you save…
To start with, you can opt to shorten the term for your auto loan, which means you can elect to have a three-year, rather than a five-year loan. Shorter loan terms will cause you to pay off your loan faster – a credit score boost!
Now, your monthly payments will be higher, of course, because you’re clearing off the same amount of debt, only faster. Committing to higher monthly payments and a shorter loan term will save you money down the road, but you’ll escape from that high interest rate sooner than later.
I bet you think that because you have crummy credit your only car option is a clunker, right?
You’ll be shocked to discover that auto loans are generally much cheaper for new cars compared to older ones. Of course, you might find an outstanding loan for a used car. If you do, by all means, go for it. But just keep in mind that the better rates are generally reserved for cars that have had fewer, or no, previous owner, not to mention questionable wear and tear.
Reign it in! In other words, do not spring for superfluous bells and whistles. Do not fall victim to upselling, which is exactly the kind of sales most car dealers shoot for. Avoid any options, features, or deals that you just don’t need.
Granted, your car dealer might insist that this or that perk only costs a couple of extra bucks a month. Right. But those bucks will multiply and the last thing you need to do is wind up upside down on this loan while you’re trying to right your credit ship.
If you find yourself dealing with a lender who will only offer you a loan provided you sign up for insurance, after-market services, or extended warranties, get up and walk away.
Another pitfall is what are dubbed “yo-yo scams.” In this case, your monthly or initial down payment will increase after you’ve already committed to the auto loan. Do not drive off before your loan terms are set and signed.
A real danger of these so-called “yo-yo scams” is that you could wind up shelling out approximately an extra five percent just in interest compared to a legitimate auto loan.
Educate yourself, walk into conversations with your lender prepared for an honest, direct exchange. And have a plan. Not just for securing a loan, but for making your payments on time every month so that your credit score can recover and strengthen up.
Keep your wits about you and you’ll be behind the wheel and on firmer financial footing in no time. Good luck!