How to Buy a Car With Bad Credit
For those who suddenly find themselves with a poor credit rating, it can seem like the end of the world when they start to think about some of the real-world consequences. One of the biggest issues to face if you have low or no credit is buying a car, especially if it’s a necessity because you need it to get to work. To be honest, things did get a whole lot worse for people in such circumstances after 2008, which is why a lot of Americans, even those with fairly reasonable credit, were forced to hold onto their existing cars instead of upgrading. Financing companies were becoming increasingly wary of approving a bad credit car loan, bankruptcy car loan, or any other loans to those with low or no credit.
The good news is that as the economy has started to grow now all over the county and lenders have started to look a little more favorably on expanding access to auto loans for those with less-than-perfect credit. However, even though it may well be a lot easier today than it used to be to get a bad credit car loan, bankruptcy car loan, or something similar, it’s still probably going to cost you a fair amount more for one of these than a regular auto loan. It’s really just the same as a mortgage or any other form of finance, as it reflects the heightened risk to the lender. Although the underwriting criteria can vary quite considerably from lender to lender, generally, you’re probably going to be seen as a subprime borrower if:
- Your FICO score is at 660 or below
- You’ve declared bankruptcy in the last five years
- Your debt-to-income ratio is 50 percent or above
Options for Those With Bad or Poor Credit
The most obvious way to avoid having to pay over the odds for finance on your next vehicle if you have poor credit is to not take credit at all and pay cash. If you can save up and possibly go for something less expensive than you might ideally want, you can get yourself back on the road. But if you need a car right now, saving up is not really an option.
If you are going to apply for a bad credit car loan, bankruptcy car loan, or any other financing, it’s important to consider the amount of time you are going to borrow the money over. It has to be kept in mind the longer the agreement, the more interest you are going to pay, but a longer agreement will mean lower monthly payments, and it’s vital you can afford the payments from the start. As for saving money, if you can afford higher monthly payments consider taking a shorter loan term as that can save a lot of interest from building up.
Purchasing Your Vehicle
Something everyone needs to be aware of, but especially those with poor or no credit, is that borrowing a large proportion of the price of a car over a long period could easily mean you owe more than the car is worth and pay for it longer. This is due to the interest rates given to those with poor credit. If you are likely to want to get a different model after three years or so, you might want to think very carefully before taking out a five or six-year car loan, especially with a small down payment.
Of course, taking out an auto loan is just like buying anything else these days, so it pays to shop around for the best deal. Even if you have bad or no credit, there are plenty of lenders out there, so there is no harm in shopping around to make sure you are getting the best deal you can for yourself.
Find A Cosigner
If you’re struggling to get auto financing at all, some companies will now take you on if you have what’s called a cosigner. A cosigner is someone with good credit who agrees to guarantee the loan, so the lender has extra options for recovery beyond just pursuing the person with the credit problems. Basically, if you don’t pay the finance company/bank will go to them for the money, so you really have to be sure all parties understand exactly what they are entering into.
Buy Here, Pay Here
When all else fails and you still really do need a car, there is now the option of going with a dealer that offers “buy here, pay here.” This is where the dealer underwrites the loan instead of going through an external company. It can sometimes mean having to drop by the dealer in person to make each payment, and the interest rate could be high, but it could mean the difference between having a car to get to work in or not if all other avenues are closed to you.