When you have good credit, qualifying for a car loan is easy. However, if your credit is less than satisfactory, the situation is more difficult. Fortunately, it is possible to purchase a car even if your credit isn't perfect. In fact, NerdWallet reports that more than 1 in 5 car loans goes to borrowers with credit scores below 600.
Here’s How to Buy a Car with Questionable Credit:
Although it may take a couple of extra steps, hard work, and planning, it is possible to buy a car with bad credit. After reviewing our tips below, be sure to create a plan and take action immediately so you can place yourself in the best possible position for when it comes time to apply for a car loan.
1. Apply for a Car Loan Pre-Approval.
If you are wondering how to buy a car with questionable credit, the first step starts before you even begin to shop. Before you start browsing and researching your ideal car, consider applying for a pre-approval so you know that you will be able to secure the car loan you need. Applying for a pre-approval also helps you understand how much you can afford to pay for a car, helping to narrow down your search to affordable options that will not break your budget.
2. Ask About Credit Requirements Before You Apply for Your Car Loan.
Save yourself time by asking your local lender their credit requirements before you apply for your car loan. If a specific lender has strict credit requirements that you won't meet, save yourself time and stress by applying somewhere else.
If you are a first time auto buyer with little or no credit, be sure to check with your local lender to see if they offer a First Time Auto Buyer program. Some programs may offer reduced down payment requirements, low rates and the opportunity to build or establish credit.
3. Pay Cash or Offer a Large Down Payment.
If you’re unsure how to buy a car with questionable credit, you must consider various down payment options. If you aren't able to qualify for a car loan, you can purchase your car by paying cash. In many cases, this will mean that you must buy a less expensive car than you originally intended. If you can't afford to pay cash for the full cost of the vehicle, you may find that lenders are more willing to approve your application if you offer a significant down payment.
4. Consult a Credit Union for Car Loan Advice.
As credit unions specialize in issuing loans, they have significant insight into how people with less than perfect credit can maximize their chances of qualifying for a car loan. After you explain your situation to the credit union, they will be able to tell you what you can do to get the loan you need.
5. Apply for a Short-term Car Loan.
If you are having difficulty qualifying for a standard car loan before buying your car, you may have better luck applying for a car loan with a shorter term. Although a short-term loan may come with a higher payment, the risk to the lender isn't as high, so they are more likely to approve your application. Short-term loans also have lower interest rates than those with longer terms.
6. Shop for Lower-Priced Vehicles.
In some cases, you may be able to improve your chances of qualifying for a car loan by shopping for a car with a lower price. In many cases, lenders that won't approve a loan for a larger amount will be willing to approve a smaller one.
7. Raise Your Credit Score.
If you don't have enough cash to purchase a car and you are unable to qualify for a loan from a dealer or another lender, you may have to delay the purchase until you are able to raise your credit score. To raise your credit score, be sure to make all of your payments on time. You can also raise your score by lowering your credit utilization ratio.
For most people, buying a car is a necessity. Fortunately, even if your credit is less than perfect, you can improve your chances of getting the car and car loan you need with these tips. If you have questions about qualifying or applying for a car loan, please contact Carolina Trust’s loan experts today.