From Low Credit Score to Car Loan Approval: What You Need to Know To Get A Car Loan with Bad Credit
Updated: Dec 8, 2021
Low credit score? Bad credit? Don’t fret. You can still get a car loan. You just need to know what you’re doing and have the patience to work your way up to it. If you do, you can get a car loan with bad credit, too! Here are some tips to help you on your journey.
Understanding what a car loan with bad credit is
When you know what a car loan with bad credit is, it’s easier to figure out how to get one.
A car loan with bad credit is when your credit score isn't good enough for other lenders. With this type of loan, there are usually higher interest rates and fees attached. However, if your credit score is between 500-660 and you can prove that you can make payments on time, then this type of loan might be the best option for you.
If you want to apply for a car loan with bad credit, the first thing you need to consider is which type of lender will provide the best deal. Since there are different types of loans and different types of lenders, it's important that you find one that doesn't have high interest rates or fees attached.
Once you've found an appropriate lender for your car loan with bad credit application, make sure you're ready to start! The process can take anywhere from a few days up to two weeks or more, so be prepared. Once your application is approved, they'll send you over all the documents needed including:
• An agreement sheet
• A purchase order
• A lien release
• A contract
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Getting approved for a loan with bad credit
There are two types of loans you can get with bad credit: a secured loan or an unsecured loan.
A secured loan is the most common type of loan for people with a low credit score. This type of loan is offered by automobile dealers, lenders, auto finance companies, and banks. You use a down payment to secure your car as collateral and then make smaller monthly payments until the balance is paid off.
An unsecured loan is much different than a secured loan. With an unsecured loan, you’re not using your car as collateral. Instead, you borrow money from the lender directly without securing anything in return (like your car). These loans are risky because if the lender does not approve your application, you may not be able to repay it in full. In these cases, you would either have to buy back your car at a higher price or sell it and repay the lender with whatever proceeds are left over from selling it.
What you need to know about your credit score
Before you start looking at car loans, you need to know your credit score. Your credit score is a number that’s used by lenders to help determine your borrowing ability and the risk of you defaulting on your loan.
Your credit score is based on information from three places:
- The three major credit bureaus: Experian, Equifax, and TransUnion
- Public records, including bills and public tax records
- The Social Security Administration
How much does it cost?
When you're shopping for a car loan, you should expect to pay between 0.25% and 3% of the vehicle's value. This will depend on the lender, but it's safe to start with an average of 1%.
You also should know that there are certain fees associated with applying for a car loan. Those can include:
Credit History Check
Lien Holder Fee
Loan Guarantee Fee
What you can do to improve your credit score
For starters, don't rack up too many late payments. This will cause your credit score to take a hit. If you can't pay on time, then send in a payment plan with a finance company or try for a loan from the car dealer.
Another thing you can do is avoid taking out new loans when trying to improve your credit score. If you're not planning on using the money, then it's best not to borrow it. If you really need the money and have no other options, then go ahead and get the loan so that you don't make matters worse by defaulting on other loans!
If you're looking for a new car but don't have any good credit history, go for a used vehicle instead of buying new. This way, you'll get better rates and can save yourself some money in the long run. New cars tend to depreciate quickly so even if they're affordable now, they won't be in the near future.
As long as you keep paying on your loans responsibly and continue to build your credit score up slowly over time (within 3-5 years), you'll eventually be able to buy that beautiful new vehicle at just about any price point!
Conclusion and Additional Tips
Buying a car is an expensive investment, but it’s important to think about the long-term benefits. If you plan on keeping your vehicle for at least 10 years, then bad credit should be no problem. That way, you can know that your purchase won’t go to waste—but remember that it will take patience and determination.