Bad Credit Loans

6 Tips for Buying a Car with Bad Credit

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If you’re thinking about buying a car but have bad credit there are actions you can take to get the best deal. Buying a car can be the second most expensive purchase that most consumers make, coming in right after purchasing a home. To avoid over-paying for a car when you have bad credit follow these 6 tips:

1. Decide between new or used.

Buying a new car has many benefits including getting a full warranty as well as free maintenance for several years and roadside assistance. But buying a new car may mean you have to settle for less car features to keep costs down. Buying a used car may mean you can get a more expensive car for your money. But you do not have the advantage of a full warranty although you may get some type of warranty.

Keep in mind a new car will have a lower interest rate than a used car. Decide which car, new or used fits into your budget. A rule of thumb is to allocate no more than 20 percent of your monthly household income for all the cars in your household; this figure should include the monthly payment, car insurance, gas and repairs.

2. Get your credit score before you shop.

Consumers can go to www.annualcreditreport.com to get (truly) free copies of their credit reports from all three bureaus. But if you want your FICO credit score, the most widely used credit by banks and lenders, you will have to pay for it at myfico.com.

Once you get your credit scores, if you have a credit score of at least 600 most car dealerships, banks and credit unions will work with you meaning you don’t have to get a car loan for bad credit. However if your credit score is 599 or lower you will need to seek out lenders or car dealerships that specialize in bad credit car loans.

Rate Shopping. When rate shopping for the best loan you may seek out multiple lenders. To compensate for this, FICO Scores ignore auto loan inquiries made in the 30 days prior to scoring. So, if you find a loan within a 30-day span, the inquiries won’t affect your scores while you’re rate shopping. For FICO Scores calculated from older versions of the scoring formula, this shopping period is any 14-day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO Score.

Remember when buying a car, everything is negotiable. Negotiate a lower price on the car, better options and a better interest rate even when you have bad credit.

3. Shop the best APR and terms, not monthly payments.

There will be 3 factors that determine how much your monthly auto payments will be; how much you borrow, the interest rate you are offered, and the term of your loan. Shop interest rates and loan terms, not monthly payments. To get the best deal you want the lowest interest rate over the shortest period of time. Don’t be distracted by promises of a lower monthly payment over a longer period of time. The best terms are 36-month or 48-month. Anything longer means you will pay much more for the car. If a dealer offers you an 84-month term — run for your life.

4. Credit unions.

Credit unions are generally more lenient with credit qualifications than other banks, especially for members. If you are not a member of a credit union think about joining one. Credit unions typically offer interest rates that are 1 percent to 2 percent lower on average than conventional banks. There are many community credit unions open to anyone living in their area. You can find credit unions in your area by using the tool at CULookup.com.

5. Consider a Down payment.

If you have poor credit, a down payment could make the difference in what terms and interest rate you are able to negotiate. It’s a good idea to have at least 20% of the purchase price as a down payment on a new car and 10% on a used car.

6. Seek out car-finance lenders.

Check out sources known for auto loans for less than perfect credit, especially online lenders. You can get approved online before you shop. InstantCarLoan.com is an online lender that specializes in bad credit car loans. You can apply online in a secure environment and have an answer within minutes. They work with 100s of lenders which can make it easier to find a car loan with imperfect credit.

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