Many people turn to auto loans to purchase new and used cars. However, If you have been deterred by your bad credit score, which is probably below 580, the good news is you can still get that loan.
Purchasing a new car while having a poor credit score isn’t impossible, but it requires you to put in a lot of work and pay higher interest rates.
On that note, here’s how to purchase your dream car despite a poor credit score.
Consider Cash Payment
Handling your transactions with cash all the time might be a reason for your poor credit score, but it means all your purchases are debt-free.
Using cash has many perks, including giving you leverage during the negotiation and full ownership rights.
However, it can restrict your car choices since you may have to purchase an inexpensive vehicle depending on how much you have saved.
One of the best ways to get the money to buy your car outright is to draw up a savings plan and stick to it.
Work On Your Credit Score
In addition to determining whether you qualify for a loan, your credit score impacts the loan’s interest rate, the initial deposit required, and the length of the loan life. These factors affect your credit score using the FICO model.
There are several ways to boost your credit score. You can start by sorting out your bills on time; it is important because your payment history has the most impact on your credit score, accounting for 35%.
Another way to improve your score is by reducing the debt on your revolving accounts, and you can do this by paying down the principal balances on your cards and loans.
Other means include stabilizing your credit by maintaining your old accounts and addressing errors you notice after checking your credit score.
Pay A Higher Deposit
Raising money for the initial deposit is a given because you may be required to pay up to 20% of the car price.
However, it is best to save as much money as possible because lenders will be more willing to grant you a loan when your down payment is considerable.
Also, paying a higher deposit reduces the interest you will have to pay during the loan.
Secure A Pre-Approved Loan
Pre-approval is a thorough evaluation of a borrower’s credit profile to determine their creditworthiness.
As long as you meet the requirements for pre-approval, it will be helpful to you because it serves as a benchmark for the loan amount and interest rates you qualify for.
When approaching a dealer with a pre-approved loan, you have made your budget clear. Some dealerships will even offer you better financing packages.
Apply With A Co-Signer
If you have a friend or family willing to help, you can add them as co-signer when applying for a loan.
Their good credit score will aid your qualification for an auto loan with more favorable rates than if you applied yourself.
However, they will be held responsible if you default on your payment, affecting their credit score.
Refinance In Future
Even if you don’t get the best rates now, you can change that in about a year. Ensure you pay your monthly installments diligently, and it will boost your credit score.
A better credit score gives you the opportunity to refinance your auto loan and get a better contract with a reduced interest rate.
Following these tips will help you get a car despite the bad credit. When you eventually secure a deal, ensure you read the contract carefully in case of unfair terms.