So what should you expect from car lenders when you have bad credit?
How do you go about getting a car loan when you have bad credit?
Below are highlights of things you can expect while buying a car if you have less than stellar credit.
Consider the Following Prior to Buying a Car with Bad Credit
There is no need to put several thousand dollars down to lease or buy a new car. The most cash you should need for a car loan (even with bad credit) is $500 to $1,000—and that’s if you do everything wrong! Anything more than that and you’re either at the wrong auto dealership or you ‘re looking at the wrong car.
It ’s best to start small and slowly graduate to you dream car. You can make it your goal to ultimately get the car of your dreams. But, for now, you’re going to have to settle for a more economical one.
Research Potential Cars and Auto Dealerships
Start by going to Edmunds.com. Not only can you get information on what rates and rebates are offered from every auto dealer, but Edmunds lists used car prices and certified rate programs. Don ‘t forget that there are a lot of car dealers who want your business. This means that there are a lot of opportunities for you to find a great deal.
Do the leg work and interview as many auto dealerships as you can. Remember to not allow them to look at your credit reports until you’re ready. You want to prevent an unnecessary credit inquiry. Credit inquiries may lower your FICO credit score.
Identify Your FICO Scores
In most cases, a decent interest rate on a new automobile will range from 0% to 12.9%. Credit unions and captive lenders generally have the best interest rates.
It’s critical that you use a creditor that reviews your highest FICO score to make a lending decision. Even though you have 3 FICO credit scores most lenders usually use the score from only one credit bureau. Ask the creditor whether they use the credit score from Equifax, Experian or TransUnion. Make Your Decision Prior to Going to Car Dealership
You should be able to negotiate all specifics about the loan before you step one foot on the dealership ’s showroom floor. Have you noticed that the first thing the salesman wants you to do is jump in the car and take a test drive? He knows how weak you will be when your nostrils get a whiff of that new car smell.
You can talk to car dealers to determine your options before you make a decision to buy. Never give out your Social Security number or driver’s license though. If they get that information, they’ll have all they need to review your FICO credit scores and reports, which cause a credit report inquiry to appear on your credit reports. Remember, credit inquiries may lower your credit scores. Make them understand that you do not want them reviewing your credit scores and credit reports. If they persist on making a copy of your driver’s license for “insurance purposes,” tell them to put in writing that they will not review your credit.
The most important thing is to first talk with the finance director at the dealership. The finance director will be able to tell you what you qualify for. Then ask to talk to a salesperson. Expectations when You Walk into a Car Dealership
Expect the car salesman to sell you a more expensive car than you need. Don’t let them convince you to buy a car you don’t need or can’t afford to pay for. This is why you must talk with the finance manager before the sales person. Don ‘t forget that the finance manager is who directs the salesman the car you can afford.
Expect that if you treat car dealership employees well, they will treat you the same way in return. They want you as a life long customer.
Expect to pay more for your auto insurance if your credit score is low. That’s right, in most states insurance agencies are allowed to use your credit score to determine insurance premiums. Make sure you consider this when deciding what is in your budget.
Financing an Auto Loan with Bad Credit
Financing a new car with bad credit is actually easier than financing a used car. New cars have incentives and/or rebates which can lower or eliminate the down payment necessary for buying a new car. You just use the rebate as the down payment. So, when looking for a new car when you have bad credit, it’s often best to buy the one with the highest rebate possible.
If the deal is structured correctly, it’s possible to buy a new car with a rate as low as 0% with no money down through a mainstream lender—if you go to the right dealership. Just because one auto dealership says, “No,” doesn’t mean you can’t be approved for a car loan at a decent rate from another dealer.
Where to Finance a Car Loan
The worst place to obtain is usually your local bank. They don’t have much incentive to finance you.
The best place is usually the car manufacturer. The car manufacturer has more incentive to offer you a good deal than any other lender. They also always report to all three national credit bureaus.
Some “subprime” lenders (lenders that charge you higher interest rates than mainstream lenders) could be your only option if you’re in a hurry. If you didn’t make your auto payments on time or had a car repossessed, subprime may be your only option. Remember, not all subprime lenders are the same. Some will offer you a fair deal—others will try to rip you off. So make sure you interview lenders and compare what they offer you.
By: Dana Mark Facemyer