Can you get a car loan with a bad credit history? | news

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Cars.com, illustration by Paul Dolan

So your credit score has suffered, but you need a car to get back on your feet. Can you get a car loan if you have a bad credit history? Yes, most people can still borrow money for a car. But expect additional interest to be paid and perhaps accept more restrictive conditions such as a lower maximum loan amount, a shorter loan term, or a higher down payment.

Connected: Yes, you can refinance a car loan. You must?

This is because your costs of borrowing money are based on the lenders’ assessment of their risk. It’s not personal, even if it seems so. While most people with lower credit ratings will still make their payments – no one wants to lose their car – the statistical risk of bad loans is higher for this group.

Here are options for a buyer with a bad credit history or simply a buyer with no significant credit history to get the best car loan deal. We have also included several links to find more information on car loans. Finally, you can check Consumer Financial Protection Bureau to learn more about your rights and responsibilities as a borrower.

Know your credit score

Your credit rating, a numerical measure of your creditworthiness, is the primary factor in determining the interest rate you will have to pay on a loan. Over the past year, used car rates have ranged from single digits for buyers with the best credit ratings to 20% for buyers with poor credit. For the latter group, lenders may also require a higher down payment or other conditions.

It is important to know where you stand; you might even be pleasantly surprised. Under federal regulations, you are eligible to receive one free credit report from each reporting agency every 12 months; the three main national credit agencies used by lenders (Equifax, Experian and TransUnion) provide them from one site… For more frequent reports, there are free and paid sources on the Internet.

Your credit report will show your bill payment history, current debt and other financial information; technically, your credit rating is not only included in the report (you may have to dig a little deeper to get this information for free, for example with one of your credit cards). It is important to study the report and move on to correcting errors (see. more about your rights to challenge errors).

Typically, the score is based on your record of on-time bill payments, your open credit accounts and total debt, how long your loans or credit card accounts have been open, and how much of the available credit you are using (if, for example, , you have exhausted one or more credit cards). Also in your archive all cases of debt collection, seizure, foreclosure and bankruptcy are indicated, as well as how long ago they occurred.

Your score is likely to differ slightly between agencies depending on when their data was last updated and the specific scoring models they use. General model FICO scorewhich ranges from 300 to 850. Lenders generally classify creditworthiness as poor (below 580), fair (580 to 669), good (670 to 739), very good (740 to 799), and exceptional (800 and above) …

You can work to improve your score over time by paying off loans and credit cards regularly and paying off your total debt. It will likely be a longer term project than your current car need, but even if you have to pay more for the loan now, improving your credit rating may allow you refinancing with better speed in the future.

“Improving your credit history will take longer than you want or expect,” said Phil Reed, automotive columnist for the financial advisory website. NerdWallet… “You can really change yourself in three years. But even six months can go a long way if you have less serious problems. “

Set a budget and stick to it

Decide what you can afford before stepping into the parking lot and stick to that budget. You need to be confident in how much you can pay per month – and remember that your monthly car budget should include (among other things) insurance, which can also cost more if you have a non-permanent loan. The last thing you want to do is dig yourself a big credit hole by skipping payments. Accessibility Calculator Cars.com can help you turn your monthly budget into an estimated price for your car.

But not just focus on monthly billing as you plan. Focus also on the loan amount and the total amount you will pay by the end of the loan term. Then, think about a cheaper car that will allow you to borrow less and take out a shorter loan. This will save money on the interest rate – since longer loans tend to get more expensive – and you are more likely to buy a car (which means there will be no more payments).

“It’s a good idea to start with a loan and then move on to a car – especially with bad credit. You won’t get your dream car, Reed said, but “any car can dramatically improve your life situation if public transport isn’t up to par.”

Shop and get pre-approved for a loan

You don’t have to just take any the loan was offered because you have a short loan. Once you have established a budget, you should look for better loan terms like any other borrower.

“You might feel like you don’t have a loan, but you might be surprised,” Reed said. “There may be more options than you think.”

Get quotes from multiple lenders for comparison. A good place to start is the credit union or bank where you do business. They are well versed in your situation over time and can give you credit for things that are not reflected in your credit rating, such as being a responsible customer. There are also many online lenders that will serve buyers with less than ideal credit. Your credit score will be an important factor, but some lenders will provide more information than others. See more about buying car loans… After shopping, try to get pre-approval so you can go to the dealer with a loan offer rather than relying on the dealer to arrange a loan.

“Better to shop around instead of leaving yourself at the mercy of the merchant,” Reed said.

For a loan organization service, dealers can often raise the interest rate on the loan than you might otherwise receive, increasing the profit on the sale. But the dealer can also get a better deal than your third party lender. With your loan offer close at hand, you can compare rates, total costs, and monthly payments. This empowers you and can relieve pressure in the dealer’s finance office. Ultimately, this will help you stay within your predetermined budget.

Do not doubt

Credit rating agencies tend to penalize several new loan applications and you don’t want to lower your score anymore. But they treat multiple car loan applications in a short period of time as one application. You just can’t stretch it out, so do all your purchases within a couple of weeks to be safe. And while you are shopping for a car loan, you should avoid applying for another loan, such as a new credit card.

Add a co-author for a loan

Hiring a relative or friend to co-sign a car loan can help a buyer with questionable credit or a young buyer with little credit to get a loan or get better terms. But you should be highly confident that you will be able to continue paying. The co-signer is equally dependent on the total amount of the loan. And if you don’t pay, his or her credit will be damaged as well. It won’t do your relationship good.

Dealers “Buy here, pay here”

If you have no other options due to really bad credit, there are used car sellers known as “buy here, pay here” dealers. BHPH dealers specialize in buyers who cannot get other loans. You’ve probably seen ads that advertise their services: no money, not a single customer refused. These dealers usually offer loan rates much higher than banks, credit unions, or other lenders. Many lend themselves, so they are involved not only in the car business, but also in finance.

You should read everything carefully before signing or transferring money to make sure that the loan agreement does not include hidden fees or add-ons that increase the real price. IN CFPB warns that while other lenders usually limit the loan amount based on the actual value of the car, the BHPH loan dealership may allow you to “borrow to pay more than the car is worth”.

More from Cars.com:

BHPH is an option if you are cornered, but you may want to consider help non-profit credit advisor to help expand your choices next time.

Editor’s note: This story was updated on April 6, 2021.

Cars.com’s editorial department is your source for automotive news and reviews. In keeping with Cars.com’s longstanding ethical policy, editors and reviewers do not accept gifts or free rides from automakers. The editorial department is independent of Cars.com’s advertising, sales and sponsored content departments.


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