When you have bad credit you may think a cheap car is your only option. At Auto Credit Express, we suggest focusing on affordable rather than cheap – you still need a decent vehicle in terms of quality – just one that's a little more budget-friendly. Here's how to get a cheap car.
9 Tips for Getting an Auto Loan Cheap
Good credit borrowers without the income to take on a new vehicle loan are scooping up top-of-the-line used cars, and driving up prices as the used vehicle stock declines on dealer lots. As a bad credit borrower, you're likely shopping a dwindling selection of used cars and may want to grab something fast before prices rise. But be wise – don't settle for just any vehicle because the price is right.
To get yourself a car that's both budget-friendly and not going to fall apart in six months, it's important that you know how to shop for a bad credit auto loan, and who to shop with! Here are nine tips for getting the most out of your car buying experience.
- Know your credit standing – If you don't know where you stand, the dealer has the upper hand when it comes to selling you on prices and interest rates. If you don't know your credit score, you can't research the average interest rates for a bad credit auto loan, or get an accurate estimate of how much car you can afford using online auto loan estimators. Without this knowledge, you don't have the power to negotiate your costs with a lender or dealer.
- Opt for a used vehicle in good condition – Ideally, you want to shop for a vehicle that's already seen its biggest drop in value, but hasn't fallen off the cliff yet. This means searching for cars that are between two and five years old, in most cases. Be aware that newer vehicles often qualify for a lower interest rate, but typically have a higher sticker price.
- Get a vehicle history report – A vehicle history report is a jumping-off point for understanding the quality of the car. It's always good to know if a vehicle was taken care of by its previous owner(s), or if it's ever been in an accident.
- Take it to a mechanic – Even with the lowdown on paper, sometimes there are issues that can lurk beneath the surface of a used car. These aren't something that many people may know to look for, like signs of flood damage. Certified mechanics can be thorough with their inspection and let you know if a vehicle is mechanically sound.
- Know what you can negotiate – Once you've found a car you're satisfied with that fits into the loan approval you got from a lender, you need to know what you can and can't negotiate on an auto loan contract, so you don't end up paying for extras you don't need.
- Don't spend on extras – There are a lot of extras and dealer add-ons that can show up in an auto loan contract so make sure you read the document carefully before you sign anything. Examples of dealer add-ons include VIN etching, paint and fabric protection, or even credit life insurance. You aren't obligated to buy any of these and can request they be removed. Have the paperwork reprinted before you sign.
- Stick to your budget – There are several ways you can stick to a budget when you need to get an affordable car loan. Make sure you have a substantial down payment or use a trade-in if you have one, and opt for the shortest loan term you can afford. Additionally, before heading to the dealership, make sure you know how much you spend on your monthly bills compared to your gross monthly income, and try to calculate a loan payment that's 20% or less of your monthly budget. These calculations are done by lenders to make sure you're not overextending your finances. You can read more about them here.
- Shop around – It's also important that you don't settle for the first offer that's dropped in your lap. Bad credit borrowers typically qualify for higher interest rates, so it's a good idea to compare a few different dealerships to see what their lenders can do for you. If you apply for the same type of credit within a two-week timeframe only one hard pull impacts your credit score, even though all the inquiries are listed in your credit reports.
- Choose the right lender – When you have bad credit it may not be possible to get a loan just anywhere. The bad credit borrowing process works a little differently than if you have excellent credit. The biggest difference is that as a credit-challenged consumer you typically have to qualify for lending before you can pick out your car. There are two types of bad credit lenders that are common for bad credit borrowers:
- Subprime lenders work with special financing dealerships to help people with less than perfect credit get the auto loans they need. These lenders look at more than just your credit score to help qualify you for financing. They're concerned with your ability, stability, and willingness to take on a car loan, and look at a number of factors to make sure you meet lending requirements.
- In-house financing is done through buy here pay here (BHPH) dealers. At these car lots, which are usually independently-owned, the dealer's the lender and doesn't rely on outside lenders to qualify you for a loan. These dealers only sell used vehicles and tend to charge higher interest rates, so proceed with caution if you're truly looking to save money. These car lots can be a great choice for bad credit borrowers who want to skip a credit check, or who need a vehicle now. Be aware, though, that convenience often comes with a higher price tag.
Tips on Getting a Good Car Deal
Even when you're trying to watch your budget, don't think too small – being a payment shopper has drawbacks. If you only focus on how much you're spending on a single monthly loan payment, you may end up paying more in interest charges than you really need to.
When you're shopping for a vehicle and need to do it cheaply, there are a few things you can keep in mind:
Basic cars have basic prices. If you're looking to save money on your next vehicle don't opt for one with the top trim package. Would it be nice to have the nicest infotainment system on the market in your next car? Sure. But is it really necessary? Stick to the functionality of the vehicle and make sure it can do what you need it to do without all the bells and whistles.
Rebates, deals, and incentives can also save you money. Look for vehicles that are being advertised with these money-saving offers. These often apply to new cars, and can sometimes be tougher to qualify for as a bad credit borrower, so you may have to search for the right deal. Want to find deals in your area to see what's available, check out our partner CarsDirect.
Some extra's might be worth considering if they can save you money in the long run. An extended warranty, for example, may cost you a little more each month but could save you hundreds down the line. To know if it's worth it, you have to compare the cost of adding the warranty payment to your loan vs. any potential future savings if your vehicle needs repairs.
You can buy a car for cash. This might be an attractive offer as a bad credit borrower because you don't have to deal with financing paperwork or monthly payments. Remember, though, that you get what you pay for. If you scrape together $2,000 to buy a used car privately, it's a $2,000 vehicle, and may not last as long as you need it to before you have to go through the car buying process again.
ACE Tip: Simply owning a vehicle doesn't do anything to improve your credit, but a bad credit car loan is an excellent way to begin building it. One of the better ways to improve your credit history is by taking on a loan you can comfortably afford and making all the payments on time.
Ready to Find Your Next Vehicle?
When you need a bad credit auto loan and are looking for an affordable, reliable vehicle, it can seem like you're facing a mountain of denials. Let us turn that mountain into a molehill by pointing you toward the right dealership. At Auto Credit Express, we've cultivated a network of special finance dealerships that have subprime lenders ready to assist credit-challenged consumers.
To get the process started today, and save yourself time, money, and hassle, simply start here by filling out our no-obligation car loan request form. It's fast and completely free.