Getting a car loan with bad credit can be difficult but not impossible. Some special finance companies specialize in giving loans to car buyers with fair, poor, bad or no credit but you can pay higher interest rates. You can usually get a car loan with decent terms by cleaning up your bad credit as much as possible. This will also enable you to get a lower interest rate than can save you hundreds or thousands on your next vehicle.
Simple steps to getting your car loan with bad credit:
- Know your credit score. Review your current credit report. You may know your credit is bad but make sure you know what’s in it. You can order your credit reports from Experian, Equifax and Trans-Union. You can also get a free copy of your credit report at AnnualCreditReport.com. Get it directly from AnnualCreditReport.com because the credit bureaus charge for orders placed on their websites.
- Read every credit entry thoroughly for mistakes. Credit bureaus can occasionally report incorrect information. You may have had 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 any errors and requires their removal from your reports if the bureaus cannot verify the data’s accuracy within a month. Fill out separate dispute forms for Experian, Equifax and Trans-Union on each bureau’s website. Your chance of getting a car loan improves with every bad item removed.
- Your credit report should now reflect your correct credit history. Once you are sure the credit bureaus clear up your disputes APPLY for your Car Loan.
* Credit applications lower your credit score, but credit inquiries made within one month for the same loan type only count as a single inquiry.
* Save up and put down the highest down payment you can to minimize the amount financed. Pay all bills on time for a few months before applying for the car loan. The higher your down payment the less you have to borrow. The MyFICO credit scoring system uses your payment history for 35 percent of its credit score. So timely bill payments will quickly improve your bad credit score.
If your credit is very bad a cosigner can help you get your car loan approved. However, the cosigner accepts full responsibility for the loan and runs the risk of damaged credit if you default. You should avoid getting a cosigner unless you can afford the car payments and make them on time. Late payments, defaults and repossession go on your both your and the cosignor’s credit reports. The finance company could hold the cosigner responsible for any remaining balance on the loan.
We hope you found our article on “How to Get a Car Loan With Bad Credit” helpful