A car can help you in so many ways but it might seem difficult to have one if you do not qualify for a car loan due to poor credit. Keep in mind that credit scores are one of the factors that lenders consider when deciding whether to approve your car loan or not.
Do not fret because there is always a way to get your hands on that set of wheels. With proper preparation and research, you can definitely find used and new car loans that work for you. Here are some steps to take before you apply for a car loan:
Step 1: Improve your credit scores
The surefire way to get approved is to improve your credit scores. However, this approach is time-consuming. No matter what, you have to persist. You can consider the following tips:
- Reduce your debt: in the months leading to your car purchase, you should reduce your debt as much as possible. By reducing your debt, it will put you in a better financial position. This will also improve your credit utilisation ratio, which shows how much you currently owe (divided by your credit limit). Experts suggest that you keep this ratio below 10%.
- Pay bills on time: when you put your application, the lender will check your payment history. It should reflect your diligent and on-time payment. With this, you stand a chance to get preapproved.
- Review credit reports: if you think you have stellar credit but the reports tell otherwise, you should review it thoroughly. Your goal here is to remove any inaccuracies to help improve your credit score.
Step 2: Look for different auto lenders
If you have bad credit, you have a lesser chance with conventional lenders (like bank and credit unions). You can have a greater chance if you consider online vendors or best used car websites. You must be careful though – some offer loans at higher interest rates.
Step 3: Ensure a larger down payment
You have to at least ensure a larger down payment. This will allow you to lower your monthly payments as well as get better interest rates. Even if you have poor credit, the lender might reconsider if you have a larger down payment. Experts suggest at least put 20% down payment – but the larger the better.
Step 4: Determine what you can afford
Before you send off your application, you have to make sure that you know the monthly loan payment you can afford. Determining your budget at the onset can help you pick a car within your price range.
Aside from determining what you can afford, you should find the current average car loan interest rates. This is helpful when it is time to negotiate. Fortunately, looking for current average car loan interest rates is easy – you just need to browse through the Internet.
If you have bad credit, your case isn’t hopeless yet. The key here is to shop a little different and be prepared for a higher cost. Always remember that a little research and planning can go a long way.