It’s still possible to get a guaranteed auto loan if you have bad credit. In fact, there are some lenders that specialize in bad credit car loans. They’re called subprime lenders, and they allow people that have not-so-great credit to afford the car that they need. If you follow these simple tips, you have a greater chance of an auto loan approval.
One of the first things a lender looks at when they receive your loan application is your credit history. Before you even begin the application process, obtain a copy of your credit report from one (or all) of the three major credit reporting bureaus (TransUnion, Experian and Equifax). Check the reports for inaccuracies, and if you find any, contact the appropriate credit bureau and ask that the item be removed. You will have to wait a month or more to see if the corrections have been made. Keep in mind that your loan’s interest rate and the amount you will get is tied directly to the information in your credit report, so it’s important that the information is correct.
Although your credit history is certainly an important component of the loan application process, it’s not the only thing lenders have to consider. They are concerned with your ability to repay the loan. If you have been in the same job for at least six months, and can provide proof of income sufficient to make the monthly payments, you will probably be approved. You’ll also need an active checking account. If you have your paycheck directly deposited into your account, it’s simple for your car payment to be automatically drafted each month. It reassures the lender that you’ll pay on time, and it’s one less check for you to write.
If you can, you should pay down any debt that you already have. It will have an almost immediate effect on your credit score. Lenders look at your debt-to-income ratio, and the less debt you’re carrying, the better interest rate and monthly payment you will receive. Having too much debt can mean higher interest and payments, or keep you from getting a car loan at all. You should know exactly how much you can afford to pay back. Getting more of a loan than you need will only end up driving you deeper into debt. Know what you can afford, and only borrow that amount.
Now that you’ve done all that, it’s time to start the application process. Ideally, you should shop around for the best rate just as you are comparing prices and options on different vehicles. The Internet makes it easy to apply to a few different lenders, and often you can get a quote in just minutes. Apply to at least five different lenders (preferably within ten days of each other), because if you space your applications too far apart, it can raise a red flag with the credit bureaus.
When you’ve got all your quotes, compare them and then apply for the one that’s offering the best rate. Try to get preapproved for your loan, because that allows you to know exactly how much you can spend. Preapproved auto loans give you more leverage with the dealer. If you walk in with a budget, it makes it harder for the sales staff to upsell you.
Having bad credit doesn’t mean that you can’t get a guaranteed auto loan approved. With bad credit car loans, it’s easier for people to get the car they need at a more affordable rate.