With the rising cost of new vehicles, many people don't have the cash on hand to buy a car outright. This often means they’re left financing a vehicle. However, before you can do that, you need to take one important step: finding out where your credit stands.
Know Your Credit Situation
The first step to buying a car is knowing your credit score and what's on your credit reports. Without this information, you're leaving all the power in the hands of dealers and lenders.
When you know where you stand, you have the knowledge to plan your car buying experience based on what you're likely to qualify for. The alternative is being disappointed if you aren't able to qualify for the vehicle, rates, or terms that you had hoped to get.
Why Is Checking Your Credit the First Step?
It's important to know where you stand so that you can determine what you're realistically able to qualify for as a borrower. Not all lenders can work with people who have less than perfect credit. If your credit isn't up to snuff, you're likely to face rejection by going to the wrong lenders.
Your credit score and what's on your credit reports determines how you can shop for an auto loan. With good credit, the world is your car buying oyster – you're likely to have an easier time getting the financing you need from a variety of lenders.
Generally, the higher your credit score is, the more opportunity you have to get the auto loan deal you want. Higher credit scores typically qualify you for a shorter loan term, a lower interest rate, and a larger loan amount. This doesn't mean that people in lower credit tiers are out of options, though.
Lenders look at your credit and how you've handled financing in the past as a road map to determine how you may handle a car loan now. If your credit is good with a positive payment history and few (if any) missed or late payments, accounts in collections, or repossessions or bankruptcies, you're more likely to be able to negotiate a good deal.
On the other hand, if your credit isn't so hot, you may need to look at alternative lending options. With a lower credit score – below around 660 – you can still get an auto loan deal through a subprime lender.
Know Your Lenders
Two types of lenders you can work with for a car loan are traditional lenders and subprime lenders. Traditional lenders, such as banks, credit unions, and some captive lenders, tend to only assist borrowers who have good credit scores.
Subprime financing is done through subprime lenders that are signed up with special finance dealerships, and they work with borrowers in challenging credit situations. They're indirect lenders, meaning the dealer’s special finance manager acts as the go-between with you and the lender.
Also called bad credit lenders, subprime lenders look at more than just your credit score and reports to help qualify you for financing. They know that many people have hit bumps in the road when it comes to credit, so they look at additional factors such as your income, employment, and willingness to make a down payment.
Finding Your Credit Information
Right now is a great time to take the first step toward buying your next car. Due to the coronavirus pandemic and recent economic instability, the major credit bureaus in the U.S. are giving you the opportunity to get a free look at your credit reports once a week until April 2021. You can do this by visiting www.annualcreditreport.com.
Next, you need to get your credit score. You can do this in many different ways. See if your bank, credit union, or credit card company provides free access to it. If not, you can pay a small fee with the credit bureaus or FICO to get it.
Once you know where you stand, you can research the types of rates and terms that are typically available to people in similar credit situations. Doing this also lets you see what type of budget you may need to get into a vehicle for your situation. You can use online calculators, such as our car loan estimator, to see how much of an auto loan you might be able to qualify for, as well.
Finding the Right Car Dealership
Once you've gotten the first step of finding out your credit situation out of the way, you can move on to the second step in the bad credit car buying process – finding the right dealership.
When you have poor credit, you need to be sure to work with a dealer that's signed up with the right kind of lenders. This means finding a special finance dealership, and we want to assist you.
Auto Credit Express has gathered a large network of these dealers all across the country that works with the kind of lenders you need. To get in touch with one without all the hassle of driving around town applying for multiple loans, simply fill out our no-obligation auto loan request form. We'll get right to work matching you with a dealership in your area.