How to Get a Bad Credit Auto Loan

If you have been struggling with debt in the past, have a bankruptcy, or accounts in collections, that doesn’t make you immune to car trouble - it also doesn’t make you immune to the need or desire for a new car. But just because your credit isn’t stellar (or maybe way less than stellar), that does not mean that you have to completely forgo getting a new vehicle or wait months or years to save up enough cash to buy one outright. There are options for bad credit auto loans that can see you in a new car today.

First, Avoid Dealership Financing at All Costs!

Getting preapproved for an auto loan is always a good idea, whether you have stellar credit or not, but it is more important to do so and avoid being at the mercy of the salesperson at the dealership if your credit is poor. This is because having poor credit and relying on dealer financing gives them much more control over you and the ability to set the terms of the loan to maximize their profit while costing you plenty. In addition, many car dealerships will seek to take advantage of the ignorance of their customers by telling them that their loan is only approved if they also get the credit protection, an extended warranty VIN windshield etching, etc. further padding their bottom line. The truth is that most lenders don’t care a whit about such things and if you add them on, you are only doing so in order to pad the dealership’s pockets further. If, however, you take the step of getting your loan in advance of going to the dealership, you will cut out a significant middleman - the dealer when it comes to financing your car.

Waiting to Improve Your Credit can Save you Thousands

Unless your need for a new vehicle is dire (you lost your only commute vehicle and can’t get to work without it, for example), you can save yourself thousands of dollars in interest payments by taking some time to fix some issues on your credit if possible. Unless you’ve recently filed for bankruptcy, your credit is probably suffering from a lot of unpaid debts or collections accounts or high-balance credit card accounts. Contacting these lenders and negotiating to pay off the debt within a few weeks or months can mean a substantial boost to your credit rating. Even eliminating one collections account may raise your credit score by as much as 20 points. This can mean the difference between requiring a subprime loan and being eligible (if barely) for a loan from a traditional lender. The interest rate difference can be as much as 10 to 12 percent.

Getting the Best Bad Credit Auto Loan you Can

If none of the previous options are realistic for you, then you will want to get preapproval for your loan before going to the dealership. Submitting your application directly will cause all of the primary auto lenders to reject your account outright, likely, however, the loan will then ‘fall’ to the subprime lenders who will have the option of writing you. Just as with getting any other type of loan, no matter what your credit situation is, you should not settle for a single check and a single offer. Since the credit reporting agencies (CRAs) now treat multiple credit inquiries about the same item (like a car loan) as one inquiry within a 14 day period, you are free to shop your loan out to several lenders to look for the best rate possible. Whereas some lenders may try to convince you that the interest rate of maybe 19% is the best you can find other lenders may not find you quite so risky and may offer you a loan at 14%. Most of all, don’t feel as though you absolutely cannot get an auto loan because of your credit situation. Unless you are unemployed, with a recent bankruptcy and current collections accounts out against you, you will likely qualify for a subprime lender somewhere.

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