Car buying is far from a one-size-fits-all process, especially if you have poor credit. Even though many aspects of financing a vehicle are going to be as individual as you are, there are still a few dos and don'ts you should know about when it comes to bad credit auto loans.
4 Don'ts of Buying a Car with Bad Credit
If you're struggling with credit issues but need a car, the process isn't as cut-and-dried as it is for individuals with good credit. That said, it's definitely possible to qualify for an auto loan with less than perfect credit. In fact, a car loan is a great way to improve your credit score!
If you want an auto loan that works for you, there are a few things you have to be sure to avoid. Let's take a look:
- Don't jump in blind – You can't get a good deal on a car loan if you don't know what kind of loan you need, and this means knowing your credit situation before you start shopping. If you're willing to take a dealer's word that your credit is bad, and that you only qualify for the highest interest rate, then you're not really prepared to purchase a vehicle.
- Don't plan on buying your dream car – When bad credit is already a factor, purchasing your dream car shouldn't even cross your mind. It's going to be a lot easier to finance the vehicle you really want after you prove you can build credit by completing a bad credit auto loan first.
- Don't be a payment shopper – Payment shoppers are only concerned with getting the lowest monthly payment for an auto loan. This sounds good until you realize that lowering your monthly payment often means stretching the loan term. This means you're paying more overall just to get that lower monthly payment, as this increases the interest charges that accumulate over the loan term.
- Don't come to the dealership empty-handed – Each lender has a set of qualifications you're expected to meet, and this means bringing documentation to the dealership with you. Though the specifics vary, all subprime lenders have the same basic requirements for getting a bad credit car loan.
4 Dos of Buying a Car with Bad Credit
When it comes to credit-challenged borrowers, there are a few things you should pay attention to to make the next auto loan as smooth as possible. Here are four dos for making the most of your bad credit car buying experience:
- Know where your credit stands – When you know what lenders see on your credit reports, and what your credit score is, at the beginning of the auto loan process, you're able to research your options. You can take a look at the interest rates people in similar credit positions typically qualify for, which gives you more negotiating power when you're working with a subprime lender or special finance manager.
- Shop for an affordable vehicle – Just because it's not the time to purchase your dream car doesn't mean you have to settle for a clunker. Even with poor credit, you might be surprised by what you qualify for. Whether you're looking for new, used, or something in between like a certified pre-owned vehicle, today's subprime lenders have more options for a wider range of buyers.
- Make sure you budget – Budgeting is important when it comes to bad credit auto loans. Lenders need to be sure that you not only have a qualifying income, but that enough of that income is available for your car loan and auto insurance. Subprime lenders usually require a minimum pre-tax monthly income of around $1,500 to $2,000, and calculate your available income using debt to income (DTI) and payment to income (PTI) ratios. These calculations are easy to do yourself, and can put you in a better position when it comes to knowing what you can afford for a vehicle.
- Work with the right lender – Buying a car with bad credit just doesn't work unless you find a lender for your credit situation. Not all lenders are willing to consider borrowers with less than perfect credit, which can make auto loans more difficult to find. However, there are subprime lenders that know a car loan is a great opportunity to build credit. In fact, it's sometimes the second chance that borrowers need to get on their way to a better financial future.
Successful Auto Loans Start Here
The dos and don'ts of bad credit car buying are fairly simple, and can help you stay on track when you're looking for your next auto loan. Now that you know what to do, it's time to take the hassle out of searching for a lender.
Subprime lenders are typically the best choice for borrowers with credit challenges. These lenders look beyond credit scores, and use additional factors to get a full picture of your creditworthiness in order to consider you for loan approval. These lenders are only found through special finance dealers. However, it's not always easy to tell which dealerships these are.
This is where we come in. At Auto Credit Express, we work with a large network of special finance dealers that span the country and are teamed up with subprime lenders. Instead of wasting time and effort doing all the searching on your own, let us help set you up for success. By filling out our easy, fast, and free car loan request form, we'll work to match you to a local dealership. Don't hesitate any longer – do get started with us, right now!