Got Bad Credit? Here's How You Can Get a Car Loan

Missy Crystal

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Tired of relying on your friends and family members for rides? Well, they're tired of it too, but you may feel like your credit history leaves you with no other option.

Fortunately, you can apply for a car loan with bad credit. You can also apply for a car loan with no credit, which is an issue that may arise when you have no credit history. People without credit often find themselves in the same boat as buyers with an unfavorable credit history when it comes to car shopping.

You might not even need a cosigner for your bad credit car loan if you follow the tips below.

Know Your FICO Score

Multiple inquiries on your credit report lower your credit score. They also make you appear desperate for credit, which scares some lenders. You can find an article on how to raise your credit score, as well as obtain a free credit score report, here.

When you walk into a dealer, bring a copy of your credit report with you. This shows that you accept responsibility for your bad credit and are serious about the steps necessary to apply for a car loan with bad credit.

Be Prepared to Explain Any Blemishes on Your Credit Report

When you have bad credit, the auto financing department may want to know everything about your credit report. Don't lie to them. If you were broke because you worked at McDonald's, explain that you now have a lucrative office job. If you didn't pay your credit card bill for 6 months because you were in the hospital, bring in documentation to prove it.

You can't prove that you're a responsible person now unless you understand - and explain - the events that led you to apply for a car loan with bad credit. Some dealers are bound by strict rules for your credit score or debt-to-income, but you may find one with the freedom to be flexible. If that's the case, it will benefit you to have an explanation for your credit history.

Be Stable

If you live with 5 roommates and are barely getting by or just went through a foreclosure, now might not be the best time to buy a new car. Stability is often a requirement for a car loan, especially if you have bad credit. Many lenders look for candidates who have lived in the same place for at least 1 or 2 years, plus had the same job for that length of time.

However, if you truly believe you're ready to commit to a car payment, you can spin bad situations in your favor when you apply for a loan. If you live with 5 roommates, maybe your rent is only $100 a month. If you were recently foreclosed, maybe you no longer have a $1200 monthly mortgage payment to worry about and live in your mom's basement for free. In both of these situations, you have plenty of money to put toward a new vehicle.

Dress Nicely

I'm not saying to wear a suit and tie, but try to look presentable. Nothing says "Please reject my car loan application" like a tattered tee with ketchup stains. If you can't afford to buy new clothes and keep them clean, you probably can't afford a monthly car payment. That's not my personal opinion; I'm telling you how some judgmental car salesmen will treat you.

Have a Huge Down Payment

Don't be fooled by commercials that promise awesome specials like $0 down, no interest for 48 months. I hate to burst your bubble, but those ads do not pertain to you.

When you have bad credit, lenders will want more money from you-especially if you want to avoid a cosigner. Most lenders will require about 25% down, but some are willing to take as little as $500 to $1000. If you have a vehicle you can trade in, that can help lower your out-of-pocket costs toward a down payment.

Have References

Be prepared to provide the name, address, and phone number of at least 3 people who know you well - and are willing to say nice things about you. Type a list up, and bring it with you to the dealer. You'll likely need it for your application.

Ask Friends and Family to Recommend Lenders Who Offer Bad Credit Car Loans

Skip this step if you anticipate a lecture. You can buy a car without their help.

Avoid "Buy Here, Pay Here" Places

I could devote an entire article to this, but I won't (not yet, at least). Just trust me when I say that you can get a bad credit auto loan from a regular car dealership. You'll just have to work a little harder to find one.

Don't Commit to a Higher Monthly Payment Than You Can Afford

You're trying to repair or establish credit, not destroy it. You might be thinking, "Well, the dealer wouldn't sell me a car I can't afford," but that's not true. Just think about how many people get their cars repossessed each year.

Make sure you consider the cost of sales tax, license plates, car insurance, repairs, and other fees when you commit to a car loan. You may find that you can easily pay for the car itself but not the responsibilities that come with it. If that happens, ask if the dealer can roll your sales tax and plates into your loan, or look into warranties that cover repairs.

It's Okay to Say No

You have plenty of other options, even with your low FICO score. Never let a dealer bully you into purchasing a car. Most car salesman are paid commission for each purchase, so it hurts them if you walk away with nothing.

Be Persistent, Not Pushy

When you have good credit, salespeople will practically fall to the ground and massage your feet. When you have bad credit or no credit, you have to convince them that you are just as important as any other customer who walks through the door.

Don't be afraid to unleash your inner Karen and ask for a manager if needed. It's not okay for associates to ditch you once they realize you have some blemishes in your credit history.

Read Forms Carefully Before Signing

Some bad credit auto loans have an at-risk fee of $2000 - or even higher. Don't become another victim!

You may also have a GPS-enabled device placed in your car so they can track your whereabouts at all times. This makes it easier for them to repo your vehicle. Sometimes dealers even install devices that can shut off a vehicle if you miss a payment.

It's important to know these things before you commit to a loan from a dealer.

Ask the Dealer's Finance Department for Suggestions

Dealers want you to buy a car, even if it's 6 months from now. Yes, they would prefer that it happens today (and so would you), but sometimes, that just isn't an option.

If all else fails, sit down with the finance department and ask them exactly what you have to do to fix your credit. Many finance specialists will give you detailed instructions on how to improve your FICO score enough to qualify for an auto loan with them. This may involve paying off all debts, opening a new line of credit, disputing innacurate accounts, or other essential steps for credit repair.

You aren't doomed to a life of public transportation or bumming rides from friends and family if you have bad credit. Many lenders work with people just like you, so check out some local dealships if you're ready for a monthly car payment.

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Full-time mom, student, and writer. I cover everything from parenting and personal finance to relationships and health.

O Fallon, MO
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