How to Get a Car Loan With Bad Credit
Getting an auto loan is difficult, but not impossible, for most people with bad credit. Some finance companies specialize in giving loans to car buyers with past financial issues, but you will pay a high interest rate premium if you use those companies. You can often qualify for a car loan with decent terms by cleaning up your bad credit as much as possible and applying for financing at the right places. A lower interest rate saves hundreds or thousands of dollars over time.
- Difficulty:
- Moderately Challenging
Instructions
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Review the current state of your credit. You may know your credit rating is bad, but check out the specifics by ordering credit reports from TransUnion, Equifax and Experian. The three credit bureaus cooperatively operate AnnualCreditReport.com to fulfill the federal requirement of giving out free credit reports every year. Order directly from the designated website because the credit bureaus charge for orders placed on their commercial sites.
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Read every bad credit entry thoroughly for mistakes. Credit bureaus are prone to reporting incorrect information. You may have late payments or a charge-off, but the bureaus might list the wrong dates or some other error in the entry. Federal law allows you to dispute anything erroneous and requires its removal from your reports if the bureaus cannot verify the data's accuracy within a month. Fill out separate dispute forms for TransUnion, Equifax and Experian, which are on each bureau's website.
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Apply for your car loan after the credit bureaus finish processing your disputes. You will receive new credit report copies to assess the positive effects on your records. Your chance of getting a car loan increases with every bad item that gets removed. Start with a local credit union or a bank with which you regularly do business.
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Apply to alternate financing sources as soon as possible if your initial car loan application gets turned down. Credit applications lower your credit score, but credit inquiries made within one month for the same loan type only count as a single inquiry. Apply through the car dealer as a last resort, since dealer financing often carries a higher interest rate to provide the seller with extra profit.
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Tips & Warnings
Save up a high down payment and pay all your bills on time for a few months before applying for a car loan. The down payment decreases the amount you must borrow, and the timely payments quickly improve your bad credit. The MyFICO credit scoring firm reports that it uses your payment history for 35 percent of its credit score formula.
Getting a cosigner may enable you to get a car financing even if your own credit is very bad, but the cosigner accepts full responsibility for the loan and runs the risk of ruined credit if you default. Never get a cosigner unless you can afford the car payments and are willing to always make them on time. Late payments, defaults and repossession go on your credit reports and the cosigner's records, too. The finance company may even sue the cosigner for any remaining balance if that person has more assets than you do.
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Comments
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denden28
Oct 06, 2008
I've looked at a lot of the links on this page, but they hook you up with a dealer. I'm trying to get financing for an auto I'm buying from a private individual. Any suggestions? -
B Walton
May 27, 2008
make sure you get a committment in writing somewhere that the dealership will allow you to refinance during your term. They aren't obligated to do you and you could be stuck with your high interest.
