How to Get a Car Loan with Bad Credit
How to Get a Car Loan with Bad Credit?
At Auto Credit Express we are often asked if you should apply for a car loan now
or wait until your situation is better. When considering if you should get a car loan with bad credit take the following items into consideration.
- Do you have money down?
- Do you have a cosigner available?
- Have you checked your credit report?
- Do you have to buy a car right now?
If you are thinking about buying a car with bad credit
and no money down we invite you to consider other alternatives. It is true that every day we help people with no money down and damaged purchase and finance a vehicle but advice everyone that a larger down payment is always the best way to go. There are several reasons for this.
When you get a bad credit car loan with no down payment
you end up borrowing more than the car is worth. In addition to the value of the vehicle, the lender also has to advance funds to pay for sales tax and registration fees. Tax rates and fees vary by state but on average these fees will add 8% to 10% to the purchase price of the automobile. So if you buy a car priced at $10,000 with no money down, chances are you will have to finance near $11,000. Lenders consider these zero down loans higher risk, with higher risk comes higher interest rates and shorter repayment terms.
In addition to higher interest rates and shorter repayment terms, if you buy a car with bad credit and no money down you will have to deal with negative equity
for quite some time. To avoid being upside down, and to get the best rates and terms, we recommend that you contribute 10% of the sales price as your down payments and pay all additional fees with cash. Following this rule in the example above, you would have to finance near $9,000.
If you have damaged credit you should always ask a parent, family member, or friend if they will cosign the auto loan
contract with you. We realize that this is often difficult but if you are able to find a cosigner with good credit, you will save a lot of money each month by paying lower interest fees. Take a look at the following example based on a $15,000 auto loan.
|Months to Repay||20% Rate with no Cosigner||10% Rate with a Cosigner||Monthly Saving||Total Saving|
|72|| $359.29|| $277.89|| $81.40|| $5,861.15|
|66|| $376.45|| $296.40|| $80.06|| $5,283.65|
|60|| $397.41|| $318.71|| $78.70|| $4,722.16|
|54|| $423.44|| $346.09|| $77.35|| $4,177.08|
|48|| $456.46|| $380.44|| $76.02|| $3,648.80|
Check your Credit Report
You can get a free copy of your credit report annually by visiting annualcreditreport.com. You should make a habit of doing this every year. Although these reports do not contain your credit score
, they will allow you to review items on your credit report. When you review your report, you may find a few quick hitters that could improve your credit score quickly. For example:
- Decreasing Credit Card Balances to below 50% of the Credit Limit
- Paying off Small Collection Accounts
With a better credit score you will qualify for a better bad credit loan.
Do You Have to Buy a Car Right Now?
Many people need a car right away so they can get to work. Without reliable transportation most of us would lose our job. If, however, you do not need to buy a car right now we recommend that you wait until you have sufficient down payment and a qualified cosigner with good credit. Additionally, make sure you clean up a few simple items on your credit report.