A low credit score can be a significant roadblock when it comes to making major purchases, such as a car. However, a less-than-perfect credit history doesn’t mean you’re out of options. There are strategies that can help you navigate the auto financing landscape, even with a low credit score.
Understanding Your Credit Score
Your credit score is basically your financial report card. Lenders use it to decide how risky it is to loan you money. A low score can make borrowing more expensive, but it doesn’t totally kill your chances of getting a car. There are ways to buy a car with a low credit score, though the options aren’t going to be as attractive as if they viewed you as a perfect candidate.
To be fair, you have to think about things from their perspective. They’re lending out their money. If you appear unlikely to pay that money back – based on your past history – then they know they’re taking a bigger risk. To offset that risk, they tighten their lending requirements or deny you altogether.
When you’re getting familiar with your credit score, it’s also wise to check your credit report for any errors that might be dragging your score down. Spotting and correcting these can give your score a quick boost.
Explore Financing Options
When you have a poor credit score, you need to know all the options you have on the table at any given time. Here are several financing options to be familiar with:
Special Auto Loans
Some lenders specialize in auto loans for people with credit scores that have taken a hit. These loans might come with higher interest rates, but they’re specifically designed for buyers like you. Do your homework and compare offers to find the best terms. Remember, the goal is to use this loan not just to get a car, but to help repair your credit score by making timely payments.
Credit Union Financing
If you’re a member of a credit union, you might have a smoother road ahead. Credit unions are known for offering loans with more favorable terms, even to members with less-than-ideal credit. They’re also more personal in their approach, which can work to your advantage when explaining your credit situation.
Alternative Lenders
Beyond traditional banks and credit unions, there are alternative lenders who may be more flexible with credit requirements. These can include online financial institutions and lending platforms. While they may offer a green light to those with poor credit, be cautious of potentially higher interest rates and fees.
Find a Good Used Car Dealer
Not all car dealerships are created equal. If you’re shopping from a big chain store, they usually have very strict requirements and corporate rules that they must abide by. In other words, no matter how much they like you or believe you might be an exception to the rules, they don’t have the leeway to make any exceptions. We recommend shopping with smaller, independent used car dealers who can make judgment calls.
“Your credit score isn’t a mark of who you are as a human being – it’s just a number,” industry insider Tiger Okeley explains. “There are car dealers, like Oak Motors, that treat people fairly regardless of their credit problems or past issues. These are the folks you want to work with.”
This doesn’t mean they’re automatically going to give you a loan or offer you an amazing deal, but you can expect to be treated fairly. And when you have bad credit in a car buying situation, that’s all you can ask for.
Up Your Down Payment
One effective strategy to offset a low credit score is to make a substantial down payment. This reduces the loan amount, which lowers the lender’s risk and, often, your interest rate. Plus, it shows lenders you’re serious about this investment, which can work in your favor.
Consider Bringing on a Co-Signer
If you have a trusted friend or family member with strong credit, they could help you cross the finish line by co-signing your loan. This means they agree to pay the loan if you can’t, which can give lenders the confidence they need to approve you. Just remember, this is a big ask, as it puts their credit score on the line, too.
Putting it All Together
Before you sign on the dotted line, make sure you understand every detail of your loan agreement. Look out for hidden fees, penalties for early repayment, and the exact interest rate you’re being charged. Understanding your loan inside and out can prevent surprises down the road and make sure you don’t find yourself in a compromising situation. Good luck!
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Johan Wallman
