Get a Car Loan with Bad Credit

Although it may seem difficult to secure the money you need for a car if you have a bad credit history, it is possible to get a car loan in this situation. Here are the basics of getting a car loan despite having bad credit.

Subprime Lending

If you have bad credit, you are going to fall into a category of borrowers known as subprime. The subprime lending market is an entirely different portion of the industry. If you do not qualify for a loan from a traditional lender, you will most likely be referred to the subprime market. Subprime lenders regularly work with those who do not have good credit scores. These lenders have a higher tolerance for risk than most traditional lenders do. This is why those that do not have exceptional credit often find their ways to subprime lenders.

Credit Score

Your credit score is going to determine whether you fall into the subprime lending category or not. Lenders have different criteria when it comes to what credit scores they are willing to work with. However, as a general rule, if you have a credit score of 640 or below, you will be considered a candidate for subprime lending.

Interest Rates

If you are going to have to get a car loan from a subprime lender, you should expect to pay a higher interest rate. The lender looks at this as an investment. One of the main rules of investing is that in order to take on a higher risk investment, you have to be able to bring in a higher rate of return. When you have bad credit, you are considered a high risk investment. This means that the lender is going to increase the amount of interest that is required for you to get a loan. In many cases, the interest rate will be twice as high as what you would pay from a normal lender.

Compare Lenders

When you are looking for a car loan, it is going to be in your best interest to compare multiple lenders. In most cases, you should stay away from the dealership when looking for financing. Many times, dealerships will take advantage of you by bundling everything together in one package. With the price of the new car, the value of your trade-in and the terms of the financing, the car dealer has too much wiggle room.

Because of this, you should consider working with outside lenders. By shopping around, you will increase the odds of getting the best deal that you can. Compare not only interest rates but also any fees or closing costs that lenders may charge you.

When you find a lender that you like, you will need to fill out a loan application form. They will verify your income, look at your credit file and then offer you a loan if everything is to their liking.

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