How to finance your car with less-than-perfect credit.
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How to get a car loan with bad credit
Getting a car loan with bad credit is a lot like getting any other type of car loan. However, you might have to work a little harder to find the best deal.
- Check your credit report. A mistake on your credit report can cost you points on your credit score. You can get a copy of your credit report for free and fix mistakes by contacting the creditor.
- Compare, compare, compare. Using a connection service that specializes in bad credit financing can help you quickly get an idea of what rates you’re eligible for, but you might not want to just stick to one — many of these are limited to their network of partners.
- Read the fine print. Many states have limits on car loan APRs, and some bad credit lenders try to sneak around these by tacking on over-priced add-ons in the contract.
- Ask an expert. Worried you won’t qualify? Sign up for a credit counseling session to have an expert guide you through your options. You can find a legit credit counselor on the Department of Justice’s website.
7 questions to ask about bad credit car loans
Before you apply for any loan, find out as much as you can about the offer you’re getting. Ask yourself these questions before you apply.
Mistakes to avoid with a bad credit car loan
Make sure you know exactly what you’re getting into before you sign up for a car loan — or any loan. If you don’t do your research, you could find yourself in a financial nightmare, or worse — in a scam.
- Going over budget. Work out how much money you’ll be paying back over the course of the loan to get an idea of how much you’ll spend on your vehicle — is it worth it, and more importantly can you afford it?
- Not checking reviews. Check review sites, messages boards and car enthusiast websites to see what other people have to say about certain lenders. If you know someones who’s been in a similar position when financing a car purchase, ask them.
- Extremely long loan terms. Some lenders offer loan terms of six and seven years that can accrue major interest over time. Sure, the monthly payments will be lower, but if it’s not absolutely necessary, it should be avoided to save money.
- Being unprepared. Check your credit score before you do any car shopping so the dealer or lender can’t take advantage of you. Also, by knowing interest rates that other lenders offer, you’ll be able to compare and find the most competitive deal.
- Making an impulsive purchase. Of course your dream car is out there. But if you have poor credit, it may have to wait so you can buy a car you can afford — and has lower rates.
Alternatives to consider
If a bad credit car loan isn’t the right choice for you, you could consider using a credit card to buy a car. The smart way to pay for a car purchase with a credit card is to buy a cheap car and take advantage of a low interest rate or 0% offer. This way you pay off the balance gradually without the hefty charges associated with a regular credit card or personal loan.
Another way to avoid taking out a bad-credit loan is to wait. Work towards improving your credit rating by controlling your debts, managing your finances responsibly and knowing what’s on your credit file so you can remove any errors or disputes from your file.