Can You Get a Car Loan with Bad Credit

Being deemed subprime or deep-subprime does not mean that your borrowing days are over. Each financial institution has its own lending criteria and a definition of what constitutes deep-subprime and subprime borrower. A credit score of 620 or less usually means that you fall in a less desirable category.

People with past financial issues can get auto financing from a finance company, but they usually pay a high interest rate premium. Another option is to clean up one's poor credit and apply for a bad credit loan with a lower interest rate and decent terms.

The first step in the loan process is to request your free credit report and look at every entry for mistakes. Credit reporting agencies sometimes report incorrect information. While you may have a charge-off or missed or late payment, the bureaus may list some error in the entry, for example, wrong dates. If there is something erroneous in your credit report, you can dispute it and request to be removed. Once the credit bureaus have finished processing your dispute, you will get a new credit report. Your chances of qualifying for an auto loan with attractive terms increases with every bad entry that is removed. car loan bad credit

You may want to start with a local bank or credit union where you have accounts and regularly do business. If your application gets turned down, you may look into alternative sources of financing. Do this as soon as possible because loan applications have a negative effect on your credit score. When financial institutions make credit inquiries within 1 month, this will count as a single credit inquiry. You can apply through the car dealership as well, but consider this a last resort. Dealers often charge higher interest rates than banks and credit unions. This provides sellers with extra profit.

Keep in mind that loan providers will request a list of documents to be presented along with the application form. These include your mortgage or rent payment information, bank information, paystubs, tax returns, insurance, and others.

To get a better deal, make timely payments on your loans and credit card accounts for a few months. Try to save up a down payment, which will decrease the amount you have to borrow. Making timely payments will increase your credit score as well. Experts recommend that consumers with deep-subprime credit scores wait until their credit moves up one category. So, depending on your score, this could mean an increase of just a few points, which will make a huge difference in your payments. For example, if you apply for car financing of $25,000 to be repaid in 5 years, the payments vary greatly depending on your credit score. Nonprime buyers will be paying around $490 a month. The monthly payments of subprime buyers and deep-subprime buyers will be $533 and $575, respectively. Given the dramatic differences in interest rates and monthly payments, it is wise to work on improving your credit standing.

If you can’t wait for a few months and were turned down buy mainstream lenders, you may ask a friend or relative to cosign for you. This will enable you to get a loan even if your credit score is really bad. The reason is that the cosigner is fully responsible for repayment in case you default. This means that they run the risk of ruined credit. Get a cosigner only if you are confident you can afford the monthly payments. Repossession, defaults, and late payments go on your cosigner’s credit report. The loan provider may even sue the cosigner if you are unable to make payments, and they have more assets than you do.