When you’re shopping for an auto loan, it’s important to get multiple quotes from different lenders so you can compare them. You want the best interest rate and loan terms possible, especially if you have bad credit.
5 Steps to Take for Finding the Best Deal
In order to get the best deal possible on a car loan, and get the quotes you need, you should to take these five steps:
- Know your credit – Know where your credit score stands and what’s on your credit reports. You can get a free copy of your credit reports from each of the three major credit bureaus (TransUnion, Experian, and Equifax) every 12 months by going to www.annualcreditreport.com, and you can check your FICO credit score either through one of your lending institutions (if they offer it) or by paying a fee on myFICO.com or with the credit bureaus. If there's any inaccurate information, make sure you dispute it to the credit bureaus as soon as possible and have it removed or updated.
- Research vehicles – What do you need out of your next car? Make sure you study different makes and models, and look up safety ratings and reviews from owners before narrowing it down to one vehicle, and be practical, as well. If you know you need a car to help you haul a lot of cargo or people, don’t go for a small sedan.
- Plan a budget – How much vehicle can you afford? Using online tools such as our Car Loan Estimator and Monthly Payment Calculator, you can get an estimate on how much you can finance. Keep in mind that these are estimates that don’t include tax, title, and registration fees or any of the additional costs of ownership.
- Try for pre-approval – Once you feel confident about moving forward, you should try to get pre-approved from your bank or credit union. If you have a good relationship, they may be able to offer you something even if you have less than perfect credit.
- Rate shop – If you’ve been denied pre-approval, you should try shopping around with different lenders. Make sure you rate shop within the acceptable time frame (usually 14 days to be safe) to avoid multiple hard inquiries on your credit reports. Try for at least three quotes, with one being from a franchise dealership with a special finance department, to compare and determine the best deal.
Your Income and a Bad Credit Car Loan
Although you should look at the overall cost of an auto loan, you may be wondering what your monthly payment could look like. Our Car Loan Estimator requires you to enter your gross (pre-tax) monthly income to get an estimate, but lenders look at other factors within your income situation, including your debt to income (DTI) and payment to income (PTI) ratios.
Your DTI ratio should be no more than 45 to 50 percent of your income. To calculate your DTI, divide all your monthly bills, including estimated vehicle and insurance payments, by your pre-tax monthly income. For example, if you make $2,500 a month before taxes, and your monthly bills add up to $1,000, your DTI would be 40 percent.
Your PTI should be no more than 15 to 20 percent of your income. To calculate your PTI, multiply your pre-tax monthly income by 0.15 and 0.20. For example, using the previous income amount of $2,500, your car payments can be anywhere from $375 to $500, to fall within the 15 to 20 percent cap. However, you can opt for a monthly payment lower than 15 percent, too.
Getting the Financing You Need with Bad Credit
Finding the right lender to work with is tough, especially if you’re struggling with credit. Rate shopping isn’t always an option for bad credit car buyers, and that’s why we want to help out.
At Auto Credit Express, we match consumers to dealerships in their area with special finance departments that are signed up with subprime lenders. Take a moment to start the process by filling out our auto loan request form right now. It’s free of cost and comes with no obligations.