Credit problems make it difficult to get any kind of financing, including loans for new or used car purchases. Getting loans with bad credit is possible, but it takes research and you usually end up with less-than-favorable terms. You may have to accept whatever financing you can find initially, and then get a new loan once you fix your credit.
Definition
Your credit problems affect your car loan prospects when your credit score is between 620 and 680, according to the LeaseGuide automotive website. Those numbers are below prime, so lenders will force you to pay a premium of as much as 5 percent over the average interest rate to get a loan. A score below 620 labels you as subprime, and most lenders will deny your application.
Preparation
Check your credit report before applying for your car loan because you may be able to alleviate some of your credit problems. Annualcreditreport.com gives you free credit reports every 12 months, so get your TransUnion, Experian and Equifax records from that site. Look for wrong balances, payments, dates and anything else in need of correction. The Federal Trade Commission explains that the credit bureaus must respond to error disputes and remove whatever they cannot confirm within 30 days of hearing from you. Your credit score goes up if you get negative data removed.
Options
Common auto financing sources include dealerships, credit unions, banks and loan companies. Some dealers advertise that they specialize in working with people who have bad credit. Try to get financing through an outside source before you try the dealer, advises editor Warren Clarke on the Edmunds.com auto website. Dealerships link you with high-interest loans because they share in the profits. Outside financial institutions and other lenders work directly with you so their rates are generally lower.
Refinancing
You are not stuck with an expensive high-interest car loan forever if you fix your credit problems while you pay off the vehicle. Clarke explains that you can refinance the loan with another lender for better terms. Prepare for this by always making your car payments on time, paying all your other bills by the due date, and reducing your owed balances as much as possible. The MyFICO credit score website explains that these are all important factors in score calculation.
Alternative
If you cannot qualify for any car loan, or if the interest rates are too high, consider using a co-signer to get the financing for you. A cosigner is someone with excellent credit who applies for the loan with you and agrees to take full responsibility if you stop paying. Consider this option carefully because you ruin your co-signer's credit, as well as your own, if you default. The co-signed loan helps repair your credit problems if you always pay on time because its history appears on your credit reports.
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