An auto loan is what most people apply for when they want to purchase a car. It doesn’t matter if it’s a used car or new car because the price tag is usually too much for the average consumer to afford on their own. People depend on lenders to approve auto loans for them so that they can purchase a vehicle and make monthly payments on it.
However, what happens if you have bad credit? Are you still able to purchase a vehicle by getting approved for an auto loan? The short answer is yes, but it is more difficult. Auto lenders will obviously be nervous about issuing a loan to someone with a bad credit score and a history of making late payments or no payments. After all, they don’t want you to be late with their payments either.
So, how do you get lenders to trust you with an auto loan if you have bad credit? Let’s look at some ways you can do this.
1. Get a Cosigner
Remember how difficult it was when you purchased your first vehicle while having little to no credit? This is kind of the same predicament you’re in now with bad credit. One common solution to either problem is to get a cosigner for your auto loan.
A cosigner is someone who puts their own credit on the line in order to help you get approved for an auto loan. The cosigner must have a good credit score for this to work. The lender will consider the cosigner’s credit score more than your own. If the lender approves the auto loan, then the cosigner’s name is on it next to yours.
That means if you ever default on the auto loan, the credit scores of both you and your cosigner will be negatively affected.
2. Second Chance Auto Loans
Second chance loans are designed for people who want to restore their credit back to normal. These are people who’ve probably ruined their credit in the past because of late payments or defaulted loans. As a result, they’re unable to get approved for traditional auto loans. The only available loans that are left for them are second chanced auto loans.
Of course, you can expect a second chance loan to have very high-interest rates and possibly other fees added on top of them. The auto loan marketplace on the Experian website can help you locate lenders who offer second chance auto loans to people who have terrible credit.
3. Credit Unions
Credit unions are known for being more reasonable with loan applicants who have bad credit. They’ll negotiate terms which are reasonable for both parties, and the interest rates are rather low as well. Sometimes an employer might be able to hook you up with a credit union too. If not, then you can search online for credit unions in your area.
Once you find some, see if they’ll preapprove you for an auto loan. Each credit union has its own requirements regarding membership approval. These requirements are based on your current employment, location, and professional affiliations.
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4. Dealership Loan
Some car dealerships will offer you a loan directly. They won’t use a third-party lender that they’re affiliated with either. The loan comes directly from the car dealership, which means they set the terms of the loan.
Unfortunately, these terms often include high-interest rates and other unfair terms. On top of that, they might not report your payments on the loan to the three credit bureaus. That means you won’t even be able to improve your credit by making your payments on time. But at least you’ll have some type of loan which will enable you to purchase a vehicle.