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How to get car finance with bad credit

Saving up for a down payment and comparing multiple lenders can help.

Payday loans are expensive forms of credit and shouldn’t be used to fix long-term financial issues. People should avoid payday loans if it will put their budget under strain, as late fees for payday loans can build up quickly and result in debt.

If you have bad credit, you know that getting a car loan can be a daunting process. But hope isn’t lost — there are lenders that specialize in offering loans to borrowers who may not have the best credit history. Let’s take a look.

How to get a car loan with bad credit

Getting car finance 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.

  • Save up a deposit. The best way to show a lender you’re serious is to have a deposit saved up. Most experts recommend having at least 10% of the car’s value before you buy, but 20% can help you borrow less — and potentially at a lower rate.
  • Apply for preapproval. Dealerships tend to offer high rates — especially when you have bad credit. By applying for preapproval with a lender before you visit the dealership, you’ll have the upper hand when it comes to negotiating your terms.
  • 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 any mistakes by contacting the creditor.
  • Compare multiple lenders. 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. Some bad credit lenders try to sneak around offering a higher rate of interest up-front by tacking on over-priced add-ons in the contract.
  • Ask an expert. Worried you won’t qualify? See if you can sign up for a credit counseling session to have an expert guide you through your options.

Bad credit commodore7 questions to ask about car finance with bad credit

Before you apply for car finance with bad credit, find out as much as you can about the offer you’re getting. Ask yourself these questions before you apply.

  1. What’s the interest rate? To get an idea of how much your loan is going to cost, look to the rate of interest (or APR) that’s being offered. The interest rate includes both interest and fees and is the easiest way to make a quick comparison of loans with the same terms.
  2. Is the loan secured or unsecured? If you take out a secured loan, the lender uses your car as collateral. While this means you may have a lower rate, you run the risk of having the car repossessed if you default on the loan.
  3. What’s my loan term? Loan terms typically run from around one to seven years. A shorter loan term can reduce the amount of interest you pay — but monthly payments will be higher. On the other hand, choosing a longer loan term will reduce your monthly payments, increasing the amount of interest you end up paying.
  4. How much will I pay each month? You want to find affordable monthly payments. It’s important to choose a loan term that suits your income and is in-line with your financial plans.
  5. Can I afford extra payments? The flexibility of making extra payments can help you get out of debt much quicker. Check with your lender to see if it allows extra payments.
  6. What are the fees? Bad credit loans often come with more fees than other types of car loans. Some lenders charge a monthly account fee and/or an administration fee. Many will also charge an initiation fee when issuing your funds; usually between 1% and 5% of the loan amount.
  7. Can I pay it off early free of charge? Some loans include early repayment fees if the loan is paid in full before the agreed loan term date. If you intend to make extra payments to pay your debt off sooner, check how much you might be charged.

Mistakes to avoid with a bad credit car finance deal

Make sure you know exactly what you’re getting into before you sign up for car finance — 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.
  • Falling for a scam. There are some common scams and tactics you should be aware of when you’re shopping for a car loan. Don’t let a predatory lender push you into making the wrong financial move.

Don’t forget to negotiate

If you’ve gotten preapproved for vehicle finance, you’re in a good spot — even if you have bad credit. You won’t have to rely on the dealership to finance you, so you can negotiate the price of your car and any other features without worrying if you can afford the car. Best of all, you may be in a position to get an even better deal. Your sales person might be willing to match the interest rate or terms you have with your current lender.

Your sales person might also try to throw in extra and incentive. Be wary. Many of these, like an extended car warranty, will cost you much more than they’re worth. Negotiate the price of the car and the terms of financing, and only go for extras if you think you’ll really use it.

Alternatives to consider

The best alternative to a car loan is to build your savings. You can also work toward improving your credit score to help get a better interest rate in the future.

If you can’t wait, you could potentially take out a personal loan to buy a car or consider using a credit card. These both come with their own risks, so consider your options carefully before borrowing.

Frequently asked questions

Do I need a co-signer to qualify for car finance with bad credit?

Not necessarily. You may be able to qualify for a car loan without a cosigner if other aspects of your application are strong, such as having a consistent income and large down payment saved up.

Is bad credit car finance actually the right solution for me?

It depends on your credit rating, the type and cost of the car you are looking to buy and your financial situation. Be sure to make through comparisons and don’t neglect other alternatives such as using a credit card to pay for a low-cost car.

How do I choose a lender that is reputable?

Do your research. Get online and see what other people are saying about their experiences with different lenders. Talk to people you know who have applied for bad credit car finance, and read all the terms and conditions.

What fees are involved that might be different from bigger banks?

Monthly account fees and initiation fees can significantly increase the amount you have to pay back. Some loans will also include a fee for early repayment, so make sure you know the ins and outs of your loan.

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