How to Obtain an Auto Loan with Bad Credit

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By Jennifer Claerr
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If you have bad credit, you can still buy a car and get it financed with an auto loan. You can buy your car new or used from a dealership, or you can buy a used car from an individual (private party) who is selling his personal car. However, people with bad credit need to take certain precautions when getting an auto loan. You will inevitably pay higher interest rates with bad credit than with good credit, so getting a smaller auto loan to start out with makes a lot of financial sense.

Difficulty: Moderate

Instructions

Step 1

Get pre-approved online for an auto loan for people with bad credit. You can do this safely on a website such as ELoan.com or Credit.com. Select whether you're seeking an auto loan for a new car, a used car from a dealer or a used car from a private party (individual). Compare the interest rates on the auto loans and choose the one with the best rate. Find out how much you qualify for on an auto loan before you start shopping for a car.
Step 2

Create a budget by comparing your monthly income to your expenses. Find out whether you have any surplus income at the end of the month. Use an online auto loan calculator or contact your prospective lender to find out how much the monthly payments will be for your auto loan. To guard against unexpected expenses, make sure that the auto loan payments are less than the extra income you found in your budget.
Step 3

Start looking for the car you'd like to buy. If you're shopping for a new car, make sure that the dealership will permit you to choose your own auto loan lender. If shopping for a used car, check the blue book value against the sales price before you make your purchase. If you choose to buy the used car from a private party, take the car to a mechanic for a checkup before you buy. Also obtain a vehicle history report to ensure that the car has never been in any major collisions. Doing this will increase your chances of being approved for an auto loan with bad credit and avoid the risk of financing the car for more than it's worth.
Step 4

Buy the least expensive car that will meet your needs. People with bad credit often make mistakes as to what they can afford, and often end up with a monthly payment that is beyond their ability to pay. If your credit is very bad, consider saving some cash for a large down-payment and buy an inexpensive used car to keep the monthly auto loan payments low. This will ensure that you will be able to make your auto loan payments, and it will also give you an opportunity to rebuild your credit so that you can qualify for a larger loan later.
Step 5

Refinance your auto loan after your credit score improves. Compare the interest rate of the current auto loan to the interest rate of the new loan, and make sure that the rate of the new loan is lower.

How to Obtain an Auto Loan with Bad Credit

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