Getting a loan on bad credit sounds too good to be true but what if we told you that you were eligible for such a loan?
Your credit history will affect your loan terms, but it will not stop you from getting one altogether. Lenders also consider other factors, such as your income, work history, and spending. Still, you shouldn’t apply for a loan right away.
A bad credit loan allows you to buy a used or brand new car without worrying about your credit score, even if it is below 579. One of the biggest factors that make people think twice before applying for a car loan is its high interest rate. Keep in mind that we are in no way trying to deter you from getting a car loan. We are simply laying out the facts so that you can make an informed decision.
In reality, a car loan for people with bad credit is easily manageable, as long as you have a steady job and keep the DTI ratio down. Make the monthly payments on time, and you won’t have any problems.
With that said, let’s take a look at a few tips on how to get your bad credit car loan application approved:
Improve Your Credit Score
Before you go car shopping, take a look at your credit score. If the numbers are low, why not work a little on improving them. We are not saying that you should pay down all your debts, but a month or two would be enough to clear arrears below $200. A good credit score will improve your chances of getting a car loan and reduce the interest rate. A few ways to make this happen are avoiding unnecessary expenses and lowering your energy bills.
Avoid Further Negative Markings on Your Credit Report
Let’s say that you have applied for your bad credit loan and are now waiting for approval. You make costly purchases on your credit card and fail to pay back on time during this period. As a result, you are late on your utility bill payments, and you withdraw more cash to catch up with your debts.
When the lender makes a hard inquiry, he will have access to all this information, which might jeopardize your case. So, we suggest that you be on your best behaviour and use your salary to pay all the bills on time, instead of making unnecessary purchases.
Increase Your Down Payment
If your credit history limits your loan amount and the lender is quoting a high interest rate, a great way to increase the former and decrease the latter is by making a bigger down payment. A substantial down payment would offset the fees and taxes, allowing you to choose your preferred car from a wide range.
Don’t Get Roped Into the Extras
Since you will be buying a car on a bad credit loan, the amount might be low. The minimum amount for a car loan for people with bad credit is $5,000, and the maximum amount is $35,000. If you get a loan of $10,000, you might have to sacrifice some luxury features, such as a premium speaker, a sunroof, leather seats, parking sensors, etc. So, if the car dealer throws in some extras for a couple of hundred dollars, refuse. You are already making down payments for the first loan, and adding a second amount will become a burden.
Ask anyone who has shopped for a car loan, and they will tell you that getting pre-approved offers you plenty of benefits. First of all, it lets you know that you will get approved if you apply for a loan. Second, it gives you a loan amount to work with. Meaning: You will know exactly how much you can afford and this will make it easy for you to look at different cars.
Often people trade their car, bought on a bad credit loan, with a new car after a year, even before the loan amount is completely paid off. Don’t fall into this trap because your old loan is added to the new loan, and the interest rate is adjusted accordingly, which increases your monthly payments.
If you decide to buy a new car, improve your credit score first to avoid falling further into debt. Lastly, don’t fall into predatory scams where car dealers offer you free polish or car wash for a year if you sign here and here. Again, this adds to your loan amount, and you end up paying more than you can afford.