If you’ve fallen on hard times, you might have given up hope of acquiring a new or used vehicle. Perhaps you’ve had to file for bankruptcy, faced foreclosure, or had a previous vehicle repossessed. Your credit score has dropped to its lowest level, and you don’t feel as if you’ll qualify for an auto loan. At Dan Cummins Chevrolet Buick of Georgetown, we work with people who have all kinds of credit scores, both good and bad, which is why we are the best bad credit dealer. That’s why we’ve developed a list of tips for buying a car with bad credit. If you follow these simple steps, you’ll be on the path toward improving your credit score and improving the loan you can get on a new or used vehicle. We believe that anyone who wants to succeed and repair their finances can do so, and a vehicle from our dealership can help you be successful.
Tip #1: Know Your Starting Point
The first item on your to-do list is to check your credit score as it currently stands. Ask for credit reports from all three firms: Equifax, TransUnion, and Experian. Scores can fluctuate from each reporting firm, so it’s important to get the latest information you can to see what your score may look like when the dealership looks you up. You can usually check your score for free on the firms’ sights or by using a site like Credit Karma or Credit Sesame.
Contrary to popular belief, you checking your credit score won’t affect it. That is because you will be running what is known as a soft inquiry, and it is just you looking at the score, not being approved or denied for it. A hard inquiry, like when you are applying for an auto loan, is where you can see an effect on your score, especially if you get a lot of them at once.
Now, take a close look at these reports. Is there any incorrect information? If so, dispute these errors with the firm. This is very important since these inaccuracies can lower your credit score. Now that you know your accurate credit score, you’ll be able to make some judgments about what a loan offer might look like.
Tip #2: Bring Proof of Stability
Before a lender may approve a car loan for someone with questionable credit, they may want to ensure that you have a stable income. They’re going to ask questions about how long you’ve been at your current address and where you are employed. This information would include you providing current pay stubs and proof of address, such as water or electric bills. You will also need to provide a working phone number. And, of course, don’t forget your driver’s license.
Before you go to apply for a car loan, gather together all of this important documentation that shows your stability. This will save you from having to do it later, and if you don’t end up needing it, at least you will have had it with you.
Tip #3: A Down Payment Can Help a Lot
Perhaps you don’t need a vehicle right away, but you will in the near future. Take that time to save for a down payment and build your credit. Even a small down payment shows that you are serious and have the means to put money away. It will also help you qualify for an auto loan. Why? Lenders do not like to take on risks, and providing a down payment shows that you are less of a risk because you have put your own money into the vehicle already.
Having a down payment will also help you pay less on the vehicle overall. If you are approved for a loan with no down payment, you will probably find yourself paying thousands of dollars in interest, even with a good credit score. Even $1,000 down can go a long way towards you having smaller monthly payments and potentially a shorter loan period depending on the initial price of the vehicle. You could save thousands of dollars over the term of the loan. Plus, you’ll be on the road to owning your vehicle that much faster.
Tip #4: Determine Your Budget Before You Shop
One of the most important items on your to-do list is to determine how much of a car loan payment you can afford each month before you start looking at vehicles and loans. You don’t want to take on more than you can afford because if you miss even one payment, it can really damage your score. Also, you don’t want to look at vehicles first, fall in love with one, then be upset when you can’t afford to buy it.
Also, avoid the trap of an extended loan period. While it may be enticing to take a longer loan term to have smaller monthly payments, you are going to find yourself paying way more in interest over the length of the loan. It’s simply not worth it in the long run. Also, don’t forget about the associated costs of vehicle ownership, including fuel/electricity, insurance, registration, maintenance, and potential repairs. Cars can be really expensive outside of their sticker price, so be smart when making a budget and then stick to the budget when you are shopping. If you are looking for some help with how much a vehicle might cost you monthly, use our payment calculator or give our finance center a call.
Tip #5: Get Pre-Approved If You Can
Another important task is to get pre-approved for your auto loan if you can. Visit your bank or credit union and see if they will pre-approve you based on your relationship with them. They’ll take into account how long you’ve been with the bank, your checking and saving accounts, and your repayment history. Then, you will already know how much you can spend. You can also apply for pre-approval on our website or by giving us a call. This is beneficial for you to see how much you can spend, and it will make the actual car buying process go that much faster.
Tip #6: Don’t Be Afraid to “Shop” for a Loan
Going hand-in-hand with getting pre-approved, don’t be afraid to look for loans from a variety of sources. As with any loan or purchase, it pays to shop around. Do your due diligence and compare rates and loan terms. Find the best loan for your particular situation, especially with your poor credit history.
So, what are your options? First off, you should try your current bank or credit union because you already have a history with them and may find they are more willing to give you a better rate. This isn’t always the case, but it is a good place to start. You can also try to find an online lender, but make sure you do your research on whoever is offering the loan. Better to be safe than sorry when getting a loan from an online lender. However, an online lender will be able to lay out all of the terms and conditions for you, and you can usually pre-qualify on their websites.
Then, check with the dealership you are looking to purchase from. Dealerships usually have access to a huge network of lenders and can sometimes get you even better loans from companies they are in good standing with. Likewise, if your credit is really bad, the dealership may suggest you skip the lenders and get a buy here pay here auto loan instead. A buy here pay here loan simply means that the dealership itself gives you the loan, and you repay it to them. You may find it is easier to get a loan since the dealership will often skip the credit check part, but the interest will be higher. However, this is a great option if you are struggling to get financing.
Tip #7: Try to Have a Cosigner
This last tip is something that we know is not an option for everyone. However, if you do have someone you can ask to cosign on a loan, we highly recommend you do, especially if you have a bad credit score. When you have someone with a better score than you who is willing to co-sign the loan, you will find it easier to get approval. A co-signer can be anyone in your life except for your spouse.
However, remember that when you have a cosigner, your actions also will reflect on their credit score. If you miss payments or default on your loan, both of your scores will take a hit, and the co-signer may be required to pay what is owed. If you do have someone to act as your co-signer, make sure they also bring the documentation we talked about in tip #2.
Now, Go Find Your Car
We hope that these tips will help you to begin your search for a new vehicle, no matter your credit rating. While it can be more of a challenge to buy a car when you have bad credit, it’s not impossible, especially when you have help. If you have any questions about your options for buying one of our vehicles when you have bad credit, give us a call, and we will help you navigate your options.
