For those with little to no credit, purchasing a vehicle can be difficult—but not impossible. If drivers are building or rebuilding credit, they’ll need to take a few extra steps. Here are a few tips on car buying for the credit challenged.
Check Credit Scores
When starting out with poor credit, interest rates will remain high until the score increases. Credit scores are a significant factor in financing and interest rates, and they often determine whether a loan is approved. Before shopping for an auto loan, know the score and available options.
Raise the Score
There’s no hard-and-fast minimum credit score for auto loans, but those with higher scores typically get better interest rates. According to industry sources, the average score for a used car purchase is 665. If the score is under 660, try to improve it before applying for an auto loan.
Fix Mistakes
If there are errors on a driver’s credit report, fixing them will bring a significantly higher credit score. If it is possible, allow at least one month to dispute errors before looking for a vehicle and a loan. Various credit repair services and DIY strategies work to improve credit scores for those in need of auto loans.
Know What’s Affordable
Regardless of credit status, borrowers should know what they can afford before they start shopping. Loan calculators are useful when determining what’s affordable; they offer an estimate of payments throughout the loan term, including interest.
Offer a Sizable Down Payment
For those with low scores and no time to rebuild credit, it’s best to put down a bigger deposit. The more substantial the down payment, the less the borrower pays in the long term. The size of the down payment depends on credit score, vehicle price, and the dealer’s terms and conditions. Generally, 10% of the vehicle price or $1000 is suggested.
Look for a Short-Term Loan
Longer-term loans are seen as a high risk, as there is more time for a borrower to default. While short-term loans come with higher monthly payments, they are a viable solution for car buyers with bad credit. The team at Consumer Portfolio Services specializes in helping low-credit buyers find auto loans at affordable rates.
Find a Low Credit Dealership
When drivers with scores below 600 need new cars, they may have to go to a dealership that specializes in low- to no-credit buyers. These dealers work hard to get loans approved, but interest rates will probably be high, and terms might not be favorable.
Get Preapproved for Financing
Getting preapproved for an Kiwi car loans from a credit union or a bank will prepare a borrower for the purchase process. Preapproval involves an analysis of a person’s expenses, income, credit report, and credit score, and it determines whether they qualify for a loan. Submitting documents and overcoming obstacles early will save time and frustration later.
Find a Co-Signer
When a person has low credit, they may need a loan co-signer. Some lenders do not offer the option, so consider it carefully when selecting a lending institution.
The Takeaway
A person’s ability to get an auto loan with poor credit depends on various factors. If they follow these tips, however, they can likely get a loan at a reasonable interest rate.
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