Is it possible to get a car loan if you have bad credit?
Article by Isabella Aldridge | August 29th 2017
Unsurprisingly, this is a common question and something which is largely misinterpreted in general. While many financial institutions will heavily scrutinize the history of your credit and penalize you for whatever they find, the prospect of getting a car loan is a lot different.
Simply put, financial institutions need to do business, and with such a large proportion of the population having bad credit, this provides a very large target market for the loan provider. In fact, recent studies showed that more than one-third of the population in the United States is considered to have bad credit.
Hence, you will find that financial institutions are a lot more flexible for smaller amounts of credit and getting a car loan is a lot less challenging than the mortgage on a house. That being said, it must be noted how the success of every application will depend entirely on the circumstances of each individual.
How to get a car loan with bad credit
Many car dealerships will provide an option to buyers to avail of finance, and this can often be the best wat to get a car loan with bad credit. At the same time, buyers must understand that this convenience will come with a cost and the interest rates for this kind of arrangement are usually a little higher than a financial institution.
Financial institutions are of course the main provider when it comes to getting a car loan with bad credit. In some cases, it might be worth applying for a pre-approved car loan elsewhere to establish some trust with the financial institution from which you intend to request a loan.
Some advice before applying for a car loan with bad debt
Unfortunately, many buyers make the mistake of walking into a financial institution or car dealership and expecting them to do all the work. Not only is this unrealistic and impractical, but it also comes across as extremely lazy and indicates that the buyer is not wholly committed to the process involved. In this respect, how can a loan provider be expected to help customers who seem unwilling to help themselves?
Here are some simple pieces of advice to take note of before applying for a car loan with bad credit:
Get the price of the car down
In the case of buying a car in private, ensure that you are getting the best possible price for the vehicle before applying for a car loan. As you might expect, the lower you can get the price of the car, the less you will need to request regarding the loan amount.
Check your “Bad credit” rating
Believe it or not, mistakes do happen, and your bad credit rating is always susceptible to human error. Before applying for a car loan, it is sometimes worth checking the detail of your credit history to ensure there are no inaccuracies involved. Remember that every inaccuracy will contribute to the extent of your bad credit and one example of human error can be the difference between loan approval and disappointment.
Calculate a realistic repayment structure
Arriving at a meeting having done no research or planning will have one result – failure. You need to have a clear understanding of what you want and in this instance, the requirements for payments going forward. Several online car loan calculators will help you work out the amount and number of payments required to repay a loan over a specified period. Write down these amounts and show your chosen provider that you are fully aware of the repayment structure.
Tip: This is also a good time to notice the difference in the cost of a loan over a longer period. ie. Interest and repayments are higher for a loan over a longer period.
Choosing an institution or car dealership for a car loan
Reputable car dealerships are just as trustworthy or reliable as a financial institution, but the one you decide upon will often come down to which one offers the most suitable requirements. As already mentioned, getting a car loan with bad credit is often possible, but both of these providers will want some proof or evidence that you will keep up with the recurring payments set out in the agreement.
Some features of a reliable car loan provider include:
- Flexibility when it comes to rates and length of the term
- Fixed rate of interest for the duration of the loan
- Same day car loan approval
- Option to make repayments monthly or weekly
- Personal advisor for duration of the loan
Car dealerships, in particular, are a little more understanding and “human” when it comes to an individual circumstance which makes them more enticing for people with bad credit. Having dealt with a long line of people in similar situations, they tend to recognize that people make mistakes and studying previous credit history is not always an accurate way to judge as to whether an application should be approved or not.
Furthermore, people who have their loan application rejected with a financial institution can always take their case directly to a car dealership instead. These bad credit loans will work in much the same way as a standard loan and have the very same result, a new car for the buyer.
The best approach for customers with bad credit
With all of the above in mind, the best way to approach a car loan with any provider is to act with honesty, transparency and good faith. Financial institutions want to believe you and get you on the road as soon as possible, but before doing so, they must ensure that you will honour the agreement. After all, creditors who provide a car loan to a person with bad credit face a bigger risk that this person may miss payments or even default on the loan.
Moral of the story: You can get a car loan with bad credit, but it is up to you to convince the loan provider that you will honour their side of agreement.
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