If you're dealing with credit issues, getting approved for a car loan may seem like a challenge. However, developing the right plan can make getting approved easier, allowing you to use the loan to improve your credit. Here are some tips on preparing for an auto loan when you have bad credit.
Preparing in Advance
Before thinking about car or financing options, there are two important things you should do in advance:
- Catch Up On Your Credit – Lenders will view your credit reports and scores when you apply with them, so it's a good idea to have your own look. If you're in the know, nobody else can define your creditworthiness for you. You're allowed a free credit report from TransUnion, Equifax, and Experian once every 12 months. These can be requested through www.annualcreditreport.com. Before applying for a loan, you'll want to order all three reports and look for any errors. Removing incorrect information may allow your credit score to improve, and every little bit can help with your car loan. You can also identify problem areas and take steps to improve your credit before you apply.
- Map Out Your Budget – While bad credit loans typically come with higher interest rates, you can use the loan to improve your credit through on-time payments. You can map out a budget in advance to make sure your payments are affordable. Know your monthly income and what you're spending every month to get a better idea of what you can realistically spend on a car payment. Don't forget that owning a vehicle comes with expenses beyond the monthly payment, such as car insurance, gasoline, maintenance, and repairs.
Making Your Loan More Affordable
A bad credit car loan can only be used to build credit when you make all the payments on time. You can make this easier to accomplish by using these strategies to help make your loan more affordable:
- The 20 Percent Rule – Many experts believe you shouldn't spend more than 15 to 20 percent of your income on all your car-related expenses. This approach will make it easier to afford your car payments and, therefore, improve your credit. Use the 15 to 20 percent rule to help you find cars in your price range.
- Choose a Short Loan Term – Buyers can lower their monthly car payment by extending their loan term, but this isn't a smart thing to do with a bad credit loan. Buyers facing a higher interest rate can greatly reduce the total cost of their loan by keeping their term as short as possible. Aim for a shorter loan term to pay off your loan faster and avoid taking on too much debt.
- Make a Down Payment – A down payment will not only help you get approved, it'll save you money, so it really starts your loan off on the right foot. Making a down payment will reduce the amount you need to borrow, which means lower monthly payments and long-term interest charges. Bad credit lenders typically require a down payment of between $1,000 or 10 percent of the car's selling price, whichever is less.
A Final Tip
These tips can help you prepare for your auto loan so you're ready when it's time to apply. But when you're dealing with less than perfect credit, you need to find a dealership that can work with your situation.
Auto Credit Express offers consumers an easy way to find local special finance dealerships. We're teamed up with a nationwide network of these dealers, and we'll connect you with one if you fill out our auto loan request form. Our service is free of cost and obligation, so you can get started with confidence today!