Steps to Take for a Car Loan Despite Your Credit Score
It can be overwhelming to find a car loan if you have a bad credit score. Credit scores are an important part of applying for an auto loan. However, having a bad score never means that you can’t buy the car of your dreams. However, you can still find a loan with lower interests for your auto financing needs by following the steps mentioned below:
1. Know Your Credit Score
To find a competitive car loan with a lower Annual Percentage Rate (APR), you should check your credit reports prepared by the credit bureaus. This credit score is the mark of creditworthiness but it is not a comprehensive figure. There are many factors that are taken into account for calculating this score. They are your payment history, duration of credit history, type of credit, and its utilization. With a complete report, you can find the areas affecting your score and report the errors if any to the bureaus. Also, you can improve these scores by lowering your credit utilization. Most reliable auto lenders will consider your life situations and inabilities to make payments on time in the past. They will also consider a lot of other factors like your current income and job history for approving the loan.
2. Make a Sizeable Down Payment
Most people make the mistake of making a low down payment. As a matter of fact, you should know that if you can’t afford a sizeable amount, then you may not be actually prepared for buying a car. You should put down at least 20% of the car’s price. The depreciation of the car is a major factor. The car depreciates a lot after being driven off the lot. Hence, it is more feasible to wait for a few months and collect the money required for a sizeable down payment.
3. Shop Around For the Best Auto Lenders
It is always better to do your homework before walking into a dealership with anticipation of getting subprime loan rates. The loan rates vary widely for buyers with bad credit scores. Do your research and find the most reputable lenders offering low-interest auto loans to every buyer. Also, you should check your affordability by considering the pricing of the car.
4. Apply for Pre-Approvals
This is an easy step that can help you find the best car loan. Visit dealer websites to fill out a credit application for pre-approval of a car loan (you can fill multiple applications). It tells the lenders that you are approaching many other companies. However, be cautious and avoid making multiple inquiries in a two-week period.
5. Check the Loan Terms
A low monthly installment does not necessarily equal a good deal. For the lowest payment rates, check the APR over the shortest period of time. Also, check if the dealer is making extra money through unwanted add-ons that will add your loan in the future.
Read all the documents carefully before signing on the dotted line. It’s helpful to remember that you can also get the vehicle refinanced after 12 months to make the most of your auto loan.