You’ve done all the work: researched, test-driven, and finally found your perfect car. Before you get behind the wheel and take your new ride off the lot, all you need is to sign on the dotted line. But, maybe there’s one more obstacle in your way: your credit. If you have bad credit, getting a loan for that shiny new car may seem like an impossible task. Maybe your credit score is the reason you’ve been avoiding buying a new vehicle in the first place. Truth be told, though, a subpar credit score doesn’t have to be the end of the world. Check out these tips and tricks for financing your new vehicle despite your bad credit.
Consider a credit union: While credit unions offer essentially the same services as commercial banks, they differ in that they’re nonprofit institutions owned by their members. Because of this, earnings go back to the members, which means lower fees and borrowing costs for you. Credit unions also often function more like a small community bank and may take a more personal approach to banking. Without the pressure to create profits for shareholders, credit unions are often more forgiving of bad credit and will be more likely to consider giving a loan to someone who might not be able to get one from a commercial bank.
Opt for a higher down payment: Most car loans require a few thousand dollars as a down payment, but if you can offer to put more money down it may make loaners more willing to consider you despite bad credit. Not only will offering more money up front make you seem more serious about the purchase, but it might help ease the lender’s mind if you’re trying to convince them that your credit score doesn’t accurately reflect your ability to make these loan payments.
Explain bad credit: An unexpected medical crisis, or other extenuating circumstances, can be incredibly expensive and lead to bad credit. However, something out of your control is more understandable and makes you more appealing to a lender than someone with the same credit score but due to compulsive shopping. You can attach a 100-word explanation to your credit file, so potential lenders can have some context to add to your credit score.
Find a co-signer: If a lender simply won’t consider you, there are still ways to finance your vehicle. A friend or relative with good credit can co-sign on a loan with you, which will boost your credibility and make you eligible for loans you otherwise couldn’t get. If you have a co-signer, it’s incredibly important to stay on top of your payments, as late payments or defaulting will not only impact your credit score but also your co-signers. However, if someone close to you trusts your ability to repay and is willing to cosign with you, it can make all of the difference in the world.
Leverage your home equity: If you have equity in your home, you can use it as collateral for a home equity loan or home equity line of credit. These loans don’t take your credit score into account, so they’re another viable option for people whom lenders have rejected. Failing to repay a home equity loan puts your property at risk, so it’s not an option to take impulsively, but if you can reliably make payments it can be a great way to finance a purchase even when you have less than perfect credit.
Having bad credit isn’t the end of the world, and doesn’t have to mean that your new car dreams are on hold. With these tips and tricks, you can find a way to finance a new car even with a bad credit score, so that past financial struggles don’t have to dictate your present. However, ultimately, your best bet is to work on improving your credit score. Check out advice from our friends at Earnhardt Auto Center’s Mr. Ed Finance Department and start working towards your good credit today!
Wife, mother, grandma, blogger, all wrapped into one person, although it does not define her these are roles that are important to her. From empty nesters to living with our oldest and 2 grandchildren while our house is rebuilt after a house fire in 10/2018 my life is something new each day.