If you have a low credit score, buying a car doesn’t have to be something to dread. The primary difference between you and someone with fair or good credit is that you’ll spend more time shopping around to secure a good deal.
Before you even start the search at a dealership, there are a few things you can do to prepare for the search; these things help place you in the best position. You’ll learn that it’s quite possible to refinance an auto loan with bad credit when you’re upside down, and that a low FICO score needn’t land you an unfavorable loan.
What Do You Need in a Car?
This may be the hardest part – it requires whittling down precisely what you need in a car. Oftentimes, this means letting go of some desirable amenities, because you’ll need a higher auto loan to cover these things. The same goes for a larger car such as an SUV, in general. Do you really need a van to get to and fro during the day?
Of course, this doesn’t mean you have to settle for the bare essentials. After all, if you’re responsible for a carpool, or have children, then you definitely need a larger car. Additionally, make sure you allow for mileage and maintenance costs. At the end of the day, having this knowledge ready acts as a buffer against an auto dealer’s attempts to get you to take the larger car loan.
Get Your Credit Report from All the Major Credit Bureaus
You need to know if there are any disparities between reports. Knowledge is power, as they say, and you don’t want any surprises after you walk into a dealership or a bank to apply for an auto loan. Obtaining the credit reports is easy, as all three major bureaus – Experian, TransUnion and Equifax – are legally required to provide you with one report per year for free.
Alternatively, if you’ve already received your yearly report for any reason, then you can sign up for a credit card. Upon receiving this information, you can write back to the credit card company and request your credit report for free up to 60 days afterward.
Worse comes to worst; just pay a small fee to obtain your credit report before you actively start trying to buy a vehicle. You’ll be much more confident armed with an acceptable range within which your bad credit auto loan should fall beforehand.
Set a Minimum and Maximum Amount to Spend
Basically; budget for this important expenditure. You’ll be paying month-after-month for several years, after all, so find an online auto loan calculator to obtain some solid numbers on what you can afford. Then, find automobile magazines, newspapers and online sources to understand the market value of the cars you have in mind.
Although you may find it tempting to consider lower monthly payments and longer loan terms, keep in mind that you’ll always end up paying more than the car is worth with an auto loan of this variety. Ask yourself why you would be willing to do this, when it generally means you trying to buy a car that you can’t really afford. For what purpose – vanity? No matter the reason, identify it and justify it to yourself. Ask a friend or family member about what they think.
Once you’re at the dealership or lender and ready to secure your loan, stick to your budget. Any suggested amenity, no matter how small the cost, grows exponentially over time since you’re making interest payments on it. Don’t be convinced by any salesperson that “it’s just this little thing.” Even if there are extras you want or need, it’s better to pay for them out-of-pocket at a place that specializes in them.
Follow the above and you’ll do just fine even if you have bad credit; there are auto loans out there for everyone – and they are competitive if you do due diligence.
