Buying a new or used car can provide the transportation you need to commute to work or school. But if you don't have cash to purchase a car outright, you'll need financing to acquire a car. Before meeting with a salesperson, explore ways to secure auto credit with a bank.
Credit Score
Banks and finance companies work with all types of car buyers. With this said, having bad credit or a low credit score won't necessarily disqualify you for financing, but you may pay a higher interest rate on the auto loan, which can increase the monthly car note. When applying for credit, you're likely concerned with keeping payments affordable. Keeping a high credit score, such as 700 plus, is key to qualifying for the best financing rate and keeping payments manageable. A timely payment record and keeping consumer debt to a minimum helps improve credit.
Loan Term
The average car buyer tends to choose a five-year loan term to keep payments affordable. But if your finances allow a higher monthly payment, consider financing the car for three or four years. Decreasing the term on the auto loan can help you secure a cheaper finance rate, and you'll pay less interest over the duration of the auto loan.
Down Payment
Reduce the amount you finance with the bank and subsequently reduce your monthly payment with a down payment. Many dealerships offer "sign and drive" deals that allow buyers to purchase cars with no money down. Although not required, a down payment can help you negotiate a cheaper interest rate on the automobile; and if you've had a bad credit history, a down payment can also increase your odds of getting credit with the bank or finance company. Aim for 10 to 50 percent of the purchase price.
Co-signers
Getting auto credit after a bankruptcy or with no prior credit history can prove tricky. Banks working with people in your situation will issue a higher interest rate. Using a co-signer on the auto loan can help you acquire credit at a more reasonable interest rate. With co-signers, banks factor in both credit scores and they take the median score to determine whether you qualify and the interest rate on the car loan. For example, if you have a score of 580 and your co-signer has an 810 credit score, the median score used for the auto loan 695.
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