Having bad credit doesn't change the fact that you need a reliable automobile. Auto lenders vary and some work specifically with people who have poor credit. Getting an auto loan with bad credit can help improve your score -- providing you pay the loan on time each month. Learn your options for financing a car with a bad credit history.
Compare Loan Offers
Knowing the different loan options available to you helps you get the best financing deal with a bad credit history. People with bad credit typically pay higher finance fees on auto loans. However, getting multiple loan quotes and comparing various offers can help you save money on interest. Check the rates of your bank or credit union and compare them to those offered by the dealer's finance team. The lowest interest rate on the loan will result in a lower car payment.
Add a Co-signer
Using a co-signer when financing your car is another trick to getting a better rate on the auto loan. Auto lenders take a co-signer's information, such as a credit score and yearly income, to determine your approval eligibility and use the median of both scores when deciding the interest rate on the loan. Using a co-signer with a high credit score can increase your chances of lowering an otherwise high rate. While your co-signer helps you get a better finance deal, this process is risky for co-signers because they assume responsibility for the loan if you default.
Personal Finances
Have your personal finances in order before talking with an auto lender. Earning enough money to afford a car payment can help make up for your bad credit history. What's more, providing a down payment when financing the car may persuade auto lenders to give you a better deal on the vehicle loan. Keep copies of paycheck stubs and tax returns for two years if you're self-employed. And if you have extra cash, consider putting a 20 to 25 percent down payment on the vehicle.
Considerations
Opening new credit and managing these accounts responsibly can give your low credit score a boost and ultimately improve your credit history. This is because auto lenders report your payment habits to the credit bureaus. Timely payments make up 35 percent of your credit score. For this reason, always submit loan payments before your due date and contact your lender to setup a new payment arrangement if you're unable to pay by the due date.
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