We know that credit is important. In an ideal world, we’d all have excellent credit scores and be instantly approved for any loans, apartments, or credit cards we needed. Unfortunately, in real life, this isn’t the case.
You might find yourself in a position where you need a new vehicle, but don’t know how to get a car loan with bad credit. We know it can be stressful and frustrating, but don’t lose hope.
Before we dive into strategies for how to get a car loan with bad credit, let’s talk about the important role your credit score plays in the process.
Understanding the Impact of Credit Score
Your credit score is a figure that describes your trustworthiness as a borrower. It’s a number between 350 and 850, and it’s defined based on a combination of factors. These factors include how much credit you have available, how much you’ve used, how much debt you have, among others.
Your credit score is a major factor in determining where you can borrow money, how much you can borrow, and at what interest rates.
For a car loan, the APR (annual percentage rate) you can qualify for is closely tied to your credit score. If you have an excellent credit score (750+) you may be able to get a car loan with as little as 5% APR. If you have poor credit (between 450 and 600), your APR will be more like 16%. If your score is less than 450, it’s unlikely that you’ll be able to find many entities that will approve you for a loan.
Options For Getting A Car Loan With Bad Credit
All that being said, if you have poor credit, it doesn’t totally discount you from getting approved for an auto loan. There are still options on the table. Continue reading to learn more.
Improve your credit score
This is maybe the most obvious option, but it won’t work for everyone. If you do have some time to spare, it can benefit you greatly to improve your credit score before taking out a car loan.
Try to pay off any credit card debt you have, pay your bills on time each month, and use any credit cards that you currently have responsibly. These can all help you bring your score up.
Even if you decide not to get a car loan right now, improving your credit score has no downside. So getting started on that path can put you in a favorable position should you want to take out a car loan in the future.
Get a co-signer
If there’s someone in your life who is willing to cosign for you, this can make a big difference in your ability to get a car loan. Getting a co-signer helps the lender know that someone with a good credit history is also responsible for making sure the loan is paid back. This decreases the risk to the lender, making them more likely to approve you.
Usually, a co-signer will have to have at least a 700 credit score. They’ll probably have to provide proof that they are employed and have a stable address.
With a co-signer, you are more likely to access better APR, higher loan amounts, and a wider array of loan options. This can help you buy time to build your credit, making you independent for future money borrowing endeavors.
Just remember, if you do get a co-signer, you need to be responsible on behalf of that person. Conflicts over repayment can put your co-signer’s credit score in jeopardy, which can result in damaged relationships.
Second chance car loans
Second-chance loans are sometimes called “subprime” auto loans. This is for a reason. They are loans that are often available for people with poor credit. But this usually equates to fairly high-interest rates.
Some of these loans also require a high down payment or additional fees. Because lenders know that you don’t have many options, they may try to take advantage of you. Beware of these loans when you are seeking out lenders.
If you can afford the car loan, and the terms seem fair, getting a second-chance loan may be an option. Just remember, you can still shop around. There’s more than one company that offers these types of loans. If a lender’s only option to you is a second-chance car loan, don’t stop your search right there.
Check with your local credit union
Credit unions are a unique type of financial institution. They are owned by their members, which means they are community-oriented. They are non-profit and have special membership agreements.
Because credit unions are invested in their members, they will often work with borrowers with poor credit to get them the loans they need. Additionally, they may be more willing to take a risk on borrowers with lower credit scores.
Overall, their APR is typically lower for members, so even the worst APR loans at a credit union are likely better than your nearby bank.
At GHS FCU, we commit to our members to help them through tough financial times. We have advisors to guide you in the process, as well as options like Skip-a-Payment to give you flexibility while avoiding penalties when times get tough.
We invite you to learn more about the car loans that GHS FCU offers. Just click the button below!