It can be a challenge to find affordable auto financing and keep those monthly payments down if you have poor credit. If that sounds like your situation, the following tips can help you find a car loan that won’t break the bank.
1) Shop Around and Be Prepared
Like any other financial product or service, it pays to do some initial research before even going to the dealer, and shopping around is a must. Dealerships want your business and one lender may work with you while another one won’t. It also helps if you know your credit score before sitting down with the dealership’s finance department and have an accurate idea of what you can afford, and what your maximum monthly payment amount should be.
2) Choose the Right Car
If you have poor credit and are trying to buy a new car, you may have to compromise somewhere to keep those payment amounts down. Consider a vehicle that’s a few years old, and don’t go for a model that has all those features and extras. Tempting though they are, you don’t need to have them and any added feature on a car will bump up its price. Lenders see different vehicles differently when it comes to determining what you qualify for; a lender is more likely to approve a newer car with fewer miles than an older luxury model with higher mileage.
3) Consider Using a Co-Signer
If you apply for auto financing with a co-signer who has a better credit score than you, you are more likely to be given a lower interest rate on your loan. And having someone trustworthy with you when shopping for a car loan can often serve as a reminder to stay within your pre-determined budget and not buy something you can’t afford. However, you both need to remember that the co-signer becomes responsible for paying back the loan should you default on it.
4) Make a Higher Down Payment
You will probably need to put down 10 percent of the selling price or $1,000, whichever is the higher amount, if you are applying for auto financing with poor credit. It’s worth remembering that the higher the amount you have as a down payment, the greater your chances of being approved for the loan, and of course your monthly car payments will also be lowered too.
5) Make Your Payments on Time
It’s important to make your car payments on time once you have secured the right financing for the right vehicle. Not only will that help you avoid late fees and additional interest, but it can improve your credit score over time. A higher credit score means that you may be able to refinance your auto loan at a lower rate in the future or trade the vehicle in for something else and benefit from a lower rate.
It is possible to find auto financing even if you have poor credit, and shopping around, knowing your limitations and budget, and having a realistic idea of what sort of car to buy can all help.