If you have a bad credit score, getting a car loan with good terms might seem impossible. While it certainly makes the process more difficult, there are things that you can do to increase your chances of getting the loan. What’s more, making regular repayments towards the loan can help you increase your credit score as well. Here’s how you should go about looking for a car loan if you have a bad credit score:
- Improve your credit score: If you don’t need to buy a car immediately, consider waiting until your credit score improves before applying for a loan.
- Research loan options: Make sure to compare loans offered by different types of lenders, including credit unions and online lenders. Typically, credit unions and online banks will have more relaxed eligibility criteria when compared to brick-and-mortar banks.
- Make a down payment: Individuals with low credit scores pose a higher risk to lenders since they are more likely to default on repayments. To offset some of your lender’s concerns around this, you can make a larger down payment. This will help you get a better interest rate and lower your monthly payments.
- Get a co-signer: If you can get a family member or friend with a good credit score to cosign a loan with you, there’s a good chance your application will be approved without any hassle.
- Pre-qualify for a loan: Applying for pre-qualification is a good way to know what interest rate you can expect to be charged and how much you will be able to borrow. So, make sure to apply for pre-qualification to a few different lenders.
- Look for a second-chance car loan: Second-chance car loans are specifically meant for individuals with poor credit scores. Keep in mind that these loans usually have higher fees and interest rates. That said, if you are unable to get a car loan from a traditional lender, a second-chance car loan may be a good option.
- Watch out for scams: Applicants with low credit scores may be more prone to falling prey to predatory lending practices. So, ensure that you keep an eye out for unfair loan terms and extremely high-interest rates on loans.
Once you have a car loan, ensure that you make the repayments on time since it can contribute to your credit score over time.