Auto Finance: Qualifying for a Auto Loan with a Bad Credit Score
Deciding to buy a auto is a big decision, and except for those that have the ability to purchase a auto for cash, most buyers will have to take out a auto loan when they want to buy a new or used auto.
Applying for a auto loan is an intimidating process, especially if you’ve never done it before, and most people don’t realize that all of their past financial history will be reviewed in order to determine whether they will qualify for a auto loan. If you’ve had financial trouble in the past, such as being late or defaulting on credit card payments, mortgage payments, or previous auto loan payments, these things will show up in your credit report and will make it harder for you to get a auto loan. Even if you have limited credit, it may be difficult to get a loan for your auto purchase.
If you are unsure of your credit score and what is on your credit report, we highly suggest obtaining that information before you start visiting auto dealers. It’s important to know where you stand and to make sure your credit history information is accurate. If you do have a bad credit score, you do have some options to help you obtain a loan for your auto purchase. Here are some suggestions:
Check with your local bank or credit union: Because you have a bad credit score, that means lenders will view you as a higher risk. A local financial institution may be more willing to work with your unique situation.
Put down a large down payment: when you head out to visit auto dealers, if you have a good amount of cash to put down or have a lot of value in a trade-in, that can help get you approved for auto financing.
Buy a used auto from a “Buy Here Pay Here” dealer: some used vehicle dealers specialize in helping buyers with very bad credit. When you buy a auto this way, you should expect to pay a very high interest rate and you will be buying a older model year auto, but at least you can get a auto you want.
If you can’t find a financing source, two other scenarios you may want to pursue are to find an older auto that you can purchase with cash or you may want to focus on rebuilding your credit for a while until your credit score is stronger. It may be a wise decision to focus on cleaning up your financial history before attempting to make a large purchase on credit. However, if you have had severe financial problems that take years to recover from, it may be a long time before you’re in a good position to make this purchase. Applying for auto loans after bankruptcy, for instance, is never going to be a comfortable process.
Having a bad credit score will make it more difficult to qualify for a auto loan, but work through all of the options to find a solution that works for you.