Having a bad credit score does not lock you out of auto loans. In fact, what you might think is bad credit could be very ‘good’ credit to someone else. There are many options available to people seeking auto loans on bad credit. Some of these are okay, while others should be a ‘no-go’ zone for you.
One of the things you should understand is that any lender offering you an auto loan on bad credit will try to make as much money out of you as possible. But you and I can beat them at their own game. In fact, I have tips that should almost guarantee you an auto loan at unbelievably low-interest rates. But don’t take my word for it; do your own due diligence first. So, are you ready? Here are the tips!
1. Honesty And Making A Good Impression Means More Than You Think
It is often said that ‘honesty is the best policy’. While you might think a lender will roll on the floor laughing after hearing your “trust me” as a justification for giving you an auto loan, being honest and making a good impression can at least get a lender to consider your application. In spite of your bad credit score, lenders are experts at judging people’s ‘face value’. How you present yourself to an auto loan lender may actually end up helping you get a loan.
2. Don’t Sweat Your Bad Credit History
Unless you are a time traveller, there is nothing you can do about how you behaved in the past, besides resolving not to behave that way again. Your credit history report is a catalogue of all the good, the bad, and the outright ugly decisions you made in the past. Perhaps you took up loans you should not have, or rumped up credit card bills, defaulted on payments, or maybe you settled loan payments long past their due dates. That’s in the past. Let’s keep it there. However, from today, you can start creating a better credit life by paying off your debts on time, going easy on credit card expenses, increasing revenue, and avoiding the negative impacts of hard credit reports that are bound to make your credit rating even worse.
I would recommend that you follow what I call the three Ts: track, trim, train. Always track your expenditure; know where your money is going into and not just where it’s coming from. Be as exhaustive as possible in listing down every expenditure for the last two months. After doing this, look long and hard at this list and prune whatever is a non-core expense. You will be surprised at how much you can save by striking out some expenses off your monthly budget. Finally, learn as much as possible about how to maintain a positive credit history. Besides reading books, there are wonderful online articles such as this one to help you stay on a positive financial track.
3. Seek Ways To Increase Your Revenue
You can increase your chances of getting an auto loan on bad credit by widening your revenue base. If possible, get another job or start looking for a better paying job. In today’s connected world, one can work from any part of the world courtesy of the internet. There are a host of online jobs that you can do during your spare time. The quickest way to improve your credit history and be approved for an auto loan is to widen your revenue base and pay your debts on time.
4. Settle Your Credit Card Debts
As you seek to increase your income so as to enhance your chances of securing an auto loan and get out of bad credit, pay as much of your credit card debts as possible. Also, get rid of credit cards you don’t really need and always pay your active credit card bills on time, every month. While at it, just because you are in bad credit territory does not mean you should accept every credit card offered to you. Be especially wary of subprime credit cards. The interest rates on these are way too high. In spite of your circumstances, there are still better credit card options available to you.
5. Use A Guarantor Or Cosigner With A Good Credit Score
A cosigner acts as a guarantor to your auto loan and improves your chances of securing one. However, a cosigner does not absolve you from your obligation to pay the loan. Should you default on the loan, however, the lender can approach your cosigner for repayment. If you can get a cosigner for an auto loan, by all means, go for it. The beauty of securing a cosigner is that your credit score does not suffer further since the auto loan is granted on the basis of a cosigner’s high credit score.
6. Get Comparable Quotes From Lenders
It would make a lot of sense to compare the cost of securing an auto loan from various lenders. Your aim here is to get an auto loan with the lowest interest rates and fees. However, you should exercise restraint when requesting quotes to avoid getting into deeper trouble with hard credit pulls. Instead, go for soft credit inquiries, which do not have a negative impact on your credit score.
7. Accept That You May Have To Wait For Better Conditions
This may be hard to take. Sometimes the best answer is neither a yes or a no, but ‘wait’. Try next time when your circumstances will have changed. It may look like it’s going to be a long journey towards credit recovery (and it will most likely be), but if you start now and stay on course, you will soon find yourself having to choose from different auto loan offers. Start working on improving your credit score through prudent management of resources and funds. Track all your expenses and prune every unnecessary expenditure. Recovery will take time, but you will get there sooner than you think. It will, however, require discipline, hard work and commitment to your financial goals.
Being approved for an auto loan on bad credit may appear like a daunting task, and it is. There are however many options available to subprime auto loan borrowers. However, you should not take up any loan you are offered just because your credit rating is in the red. Do your due diligence and ensure that the auto loan you end up with is the best you can get. If this means buying a used car, by all means, go for it.
Buying a used car costs much less than a brand new car. It may not come with all the bells and whistles you would prefer, but as long as it is mechanically sound and does not look hideous, it should at least keep you on the road for a couple of years without raising eyebrows. This is perhaps all the time you will need to get your credit history out of the woods. Lastly, if all the auto loan doors are shut, there is still a chance to come back, later, when your circumstances have changed. Sometimes the best strategy is to wait. No situation is permanent. Yours will change too.