Lenders see a credit score below about 620 as a risk, putting you in the subprime loan category. This does not mean it is impossible to get a car loan, but be aware that the APR for these loans are generally high. Follow these tips to help you qualify for the best possible APR:
1) Know your credit score
It's always smart to know your credit score so you are prepared for what lenders may tell you. This will also prevent dishonest lenders and dealers from saying your score is lower than it really is.
2) Wait to buy
For many people, owning a car isn't a matter of life or death. If there is any way to wait for a few months while you improve your credit score, it could save you thousands of dollars if you can then qualify for a lower APR. Your credit score is a snapshot of your credit, so making a few changes can drastically improve your score in a short time.
3) Get financing first
Many lenders specialize in subprime lending and are willing to loan to those with bad credit. Our recommended online lenders can help you with this and even approve you for a certain amount before you shop for a car. This ensures that you will be able to finance a car and cuts out having to bargain with the dealer about exorbitant APRs.
4) Improve your chances
Even with bad credit, you can take several steps to boost your odds of qualifying for a car loan. Having a job for more than 6 months will help. Lenders like to see stability, so a stable occupation is considered less risky than if you are self-employed. Work on paying down debt and credit balances before applying. Haggle with creditors to get charge offs, late payments, and black marks of your credit report. Place a bigger down payment on the car.
5) Shop around
Don't be tempted to take the first offer you get just because you are afraid no one else will approve you. It is still important to shop around so you can get the best deal. Some dealers will be more willing to take a chance on you than others.
Remember, even if you can't get a great APR on your car loan right now, if you pay your bills on time and pay down your debt, you will most likely be able to refinance at a lower APR in about 6 months.
