Buying a vehicle is a major purchase that often requires a person to take out a car loan. Individuals who have good credit can typically do this easily, but it can be much harder for a person who has bad credit to obtain a favourable auto loan.
How does a borrower’s credit score impact an auto loan?
A person who has a lower credit score or limited credit history will typically have a higher interest rate for their loan. They may have to pay a much higher down payment, and their monthly payments may be higher. Before you go to a dealership, take the time to get a copy of your credit report and score so you know what it looks like.
While it is challenging to obtain a car loan with bad credit, it’s not impossible. Consider these tips to help you appear more favourable to lenders so they can offer you an auto loan.
How can you appear more favourable to car loan lenders?
The steps you take to appear more favourable depend on your credit history and how much time you have before you need to purchase the vehicle. If you have several months or longer, you can consider opening a secured credit card that will improve your credit and payment history. You can also open a checking account at a credit union because credit unions are more likely than most banks to write auto loans for people with poor credit.
If you need a vehicle within the next few months or sooner, you may need to find a co-signer. This person should have excellent credit and must be willing to say they will cover the payments if you can’t make them. You may also need a large down payment. People who don’t have a co-signer or a large down payment may need to get a vehicle from a place that offers in-house financing, which is sometimes referred to as “buy here, pay here financing.”
It’s usually difficult for a person who has bad credit to obtain a car loan for a new vehicle because of the high price tag. Because of this, you should consider buying a used vehicle. Making the payments on time for that vehicle will show that you’re responsible with credit and may help you to get a car loan for a better and newer car in the future.
