9 tips for getting a good deal on a bad credit auto loan
Getting a good deal on a car loan with bad credit starts with being prepared for a trip to the dealership. We’ve got nine ways to prepare yourself for your next vehicle purchase!
1. Consider pre-approval
Not only could pre-approval get you a good deal on your next car loan, it’s also a great negotiating tactic that could save you money. Pre-approvals are offered by direct lenders, such as a bank or a credit union.
If you can handle a pre-approval, it can be a great bargaining chip. You can tell a dealership that you have already been pre-approved, but that you are open to other lending institutions if they can offer a lower interest rate. The dealer could then execute your request through their loan partners, and if you qualify, you may be offered a lower rate in an attempt to get you to finance with them.
Bad credit borrowers can sometimes struggle to meet a direct lender’s pre-approval requirements, but it’s worth a try for the benefit. Credit unions can be a little more forgiving than the big banks or some captive auto lenders.
2. Think about a used car
When you have poor credit, purchasing a manageable car loan should be a priority. It often means shopping for a used vehicle on a brand new one.
Generally, borrowers with bad credit have a better chance of qualifying for a used car because auto loan amounts tend to be lower, due to lower vehicle selling prices. The larger the loan amount, the more reluctant the lender may be to approve the loan for you if your credit score is not excellent. Choosing an affordable used car can improve your chances of getting approved for an auto loan. And if the loan is considered low risk because the amount is lower, it could mean qualifying for a better deal.
3. Find your vehicles
Having a lower credit score can sometimes give you fewer vehicle options, but it’s always a good idea to shop around for a car that can hold its value. A vehicle with good resale value is valuable to any borrower, but especially bad credit borrowers. By financing a car that retains its value, there is a higher likelihood of being in a position in stocks when you need to sell or trade the vehicle. This is useful down the line, as it can mean more money in your pocket or more money on your next purchase.
Some vehicles hold their value better than others. Brands like Subaru, Honda, Jeep, and Toyota generally have pretty decent resale value as they are sought after by buyers. If there’s a vehicle you prefer, do some research online to see what the car will likely be worth in a few years, and if the selling price makes sense in relation to its projected value over time.
4. Save for a down payment
It’s hard to overstate the importance of a down payment if your credit score is low. One of the easiest ways to get a good deal on a car loan is to make a big down payment. If you are working with a subprime lender on your next car loan, you will likely need a down payment of at least $ 1,000 or 10% of the vehicle’s sale price.
A down payment requirement can be difficult to meet because it is not always easy to save money. However, saving money has many benefits for you and your car loan. The benefits include a lower loan amount, lower interest charges, higher approval ratings, more vehicle choices, and a lower chance of defaulting on a car loan.
If you already own a vehicle, its equity can also be used to meet this down payment requirement. The latest stimulus checks and tax season could also provide you with the cash you need to qualify for auto finance with poor credit. Using windfall sums like this – if you qualify – can make it easier for you to get a good deal on a car loan.
As a bonus, some lenders may be willing to offer a lower interest rate if you have a large down payment.
5. Rate the store
Buying rate involves applying for an auto loan from a few different auto lenders. You may be reluctant to apply for a few loans at a time, due to the risk of hurting your credit score with difficult applications. however, the purchase price minimizes this damage.
If you apply for a car loan from multiple car lenders within two weeks, just one serious request impacts your credit score. All the hard prints are brought to your credit, but only one carries any weight. To find the best deal for your situation, plan which lenders you want to apply to and apply within a short period of time to reduce further credit damage. This way you can compare all the rates you can qualify for before diving into the first deal you get.
6. Look for discounts for bad credit buyers
Typically, special discounts offered by car manufacturers are only available to borrowers with good credit. However, some automakers, such as Kia, offer programs for borrowers with less than perfect credit.
The discounts are offered by the automakers, and their purpose is to induce a borrower to finance with their loan branch. It may take a bit of work on your part to find an auto maker that offers discounts to borrowers with bad credit, but it could mean getting a good deal and saving money on your next vehicle purchase.
7. Get a shorter loan term
When you finance a car, you need to be careful about choosing the length of the loan. The longer you finance a vehicle, the more interest you have to pay.
Auto loans almost always use a simple interest formula, which means your interest charges add up daily based on your loan balance. Therefore, if you choose a longer loan term in order to lower your monthly payment, it means you have a higher loan balance for longer, which means you pay more interest on your loan.
If you can manage it, choose a vehicle whose sale price allows you to pay the monthly payment within 48 to 72 months. Remember, cars depreciate assets that lose value every year, so paying it off quickly is well worth it.
8. Ignore unnecessary add-ons
There are a few dealer add-ons that make sense, but a few are probably not worth your hard earned money. For example, VIN engraving, painting or fabric protection, and rust remover are widely viewed as a waste of money by many borrowers.
These additions may not add value to your car, but instead just add up to your total loan amount. Many of these additional costs can be built into your auto loan, which means more interest charges and a higher loan amount. If you’re looking to save money on your next car loan and get a good deal, steer clear of the unnecessary add-ons. If there’s one you want to buy, ask lots of questions and see if the price is negotiable.
9. Work with the right lender for your bad credit
With a lower credit score, it’s important to apply for vehicle financing from a lender who can help you with your credit challenges.
Many traditional auto lenders cannot work with bankruptcy borrowers, help new borrowers without a credit history, or help out. borrowers who have a repossession on their credit reports. If you’re struggling to meet the demands of a traditional auto lender, consider a subprime lender through a special financial dealership.
Special finance dealerships are signed with subprime lenders who specialize in helping bad credit borrowers get the auto loans they need. Working with the right lender for your credit situation can greatly improve your chances of getting approved.
Ready to borrow a car?
Finding a lender who can help you with credit problems can be easier said than done. We’re trying to make it easier for bad credit borrowers to get the connection they need to get the vehicle they need.
Here has Express auto loan, we’ve created a dealer network from coast to coast. If you need a dealer with bad credit resources, complete our free auto loan application form and we will look for one in your area.