If you’re in the market for a different set of wheels, you’ll most likely have to take out a loan. Unless the vehicle you’re looking at is only a couple hundred dollars, you probably don’t have the cash on hand to simply rush out and buy it. That means taking out a loan, and if your credit rating is lousy, you may have trouble finding someone to lend you the money at a decent interest rate.
A few tips on how to finance a car with bad credit
Know Where You Stand
Before you attempt to find someone to lend you money for a car, find out exactly what your credit score is. It’ll give you a good idea of how much interest you’re going to have to pay. The lower your credit score, the higher the interest rates are going to be. If your score is really bad, you may not be able to get a loan at all–at least not through a bank or credit union.
Improve Your Credit Score
Improving your credit score is a good way to get better interest rates. If you aren’t in any immediate need of a newer vehicle, it may be in your best interest to try and bring your credit score up before taking out a loan. A good way to do that is to charge a few items on your credit card. When the bill comes, pay it off. Another way is to take out a high interest loan for a small amount of money from a bank or credit union. Don’t use the money, however. Leave it in a savings account, instead. Make your payments on the loan, in full and on time. These two methods will improve your credit rating, and then you can get a vehicle loan with significantly lower interest rates. It may take some time, but it could be worth it in the long run.
Shop for the Best Price
Of course, you’re going to shop for the best price when you buy a car, but you should also shop for the best price on a loan, particularly if you have bad credit. You’re at the mercy of any lender when you have bad credit–it makes it especially easy for them to take advantage of you. They may think you’ll simply be grateful to get the loan at any price. However, if you go to a few banks and credit unions, you’ll most likely come up with a variety of loan offers. The car dealer may also be a source for a loan. Compare their offer to the banks and credit unions, and then pick whichever one will give you the best interest rates. Keep in mind that the terms of each loan offer will differ, so you’ll have to break them down to determine whether a long-term or short-term loan would be better for you.
Ask Relatives and Friends
People with a very bad credit score may have to seek an alternate source in order to get a loan. Asking your friends and relatives may be a good place to start. If you’re generally reliable, and have simply fallen on bad times, one of your friends or a relative may be willing to take a chance on you. In most cases, you’ll still have to pay interest on the loan, but at least you’ll have the money to buy a car.
Find a Cosigner
If your credit rating is really bad, you may not be able to get a loan unless you pay exorbitant rates. One way to get a cheaper rate is to find a cosigner for the loan. This will have to be someone who has good credit and is willing to trust you. You will be responsible for making payments when they’re due, in full and on time. If you fail to do so, they will be forced to make the payments.
Borrow As Little As Possible
When you go shopping for a car, and ultimately for a loan, you should keep in mind that the more money you borrow, the higher your payments will be. You should also be aware that if you’re going to be paying extremely high interest rates, the majority of your monthly payment will be going towards paying interest, not reducing the principal of the loan–at least until you pay down the loan significantly. You may be better off settling for a less expensive car, so you won’t have to borrow as much money.