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    How To Get An Auto Loan With Bad Credit

    How To Get An Auto Loan With Bad Credit

    A reliable car is essential for so many reasons - but financing your vehicle purchase can be challenging if your credit is less than perfect. 

    To avoid the disappointment of being rejected for car loans and having to leave your new set of wheels on the dealer’s floor, you’ll need a capable strategy. Let’s take a closer look at what’s involved in applying for vehicle finance with an average to low FICO score. 

    Be Aware of Your Credit Score And Fix It If You Can 

    Unless your car purchase is extremely urgent, you probably have some time to plan your purchase over the next few months. This will give you much needed time to improve your credit score and improve your chances of being approved for a loan. 

    • Know your score. You’ll want to apply for your free annual credit report (which is now free each week until April 2021). Once you know your score and have gone through your report, you’ll want to take some time to improve it. 
    • Making your payments on time each month, paying down your balances to less than 30% of your credit limit, and contacting the credit bureaus to correct wrong information on your credit profile will all help boost your score. 

    Aim For A 20% Down Payment         

    The bigger your down payment, the less you’ll need to borrow to finance your vehicle purchase - and the more likely you are to be approved. 

    • Saving up a downpayment may take time - anywhere between a few months and a year depending on your budget - but it’s one more thing you can work on as you browse around for cars and improve your credit. 
    • Lenders look fondly on borrowers who have a sizable downpayment ready and you may be able to secure a better APR with cash to put down on your vehicle. 

    Figure Out Your Optimal Monthly Repayment Budget            

    Once you know what type of down payment you’ll be working with, you can start to search for lenders that are willing to work with bad credit borrowers. 

    • You’ll want to get a loan estimate based on a soft credit check - hard pulls can lower your credit score needlessly. 
    • Next, you’ll need to rework your monthly budget with your car payment in mind. It may be necessary to cut your entertainment expenses and other discretionary spending to make room for your loan repayment. This will help you avoid missed payments and possible default. 

    Find A Cosigner       

    Asking someone to cosign your loan application can boost your chances of being approved - but there are several important considerations you’ll need to bear in mind. 

    • Their Credit Needs To Be Good - The person you ask to cosign for you needs to have good to excellent credit - that’s a FICO score of 680 or higher. Asking someone with the same or worse credit than you is unlikely to help your application. 
    • It’s No Small Favor - Your cosigner needs to be someone you know well and have a mature and trusting relationship with. Since they’ll be liable to repay your loan if you default, you’ll need to explain all the details to them and make sure they understand their obligations. 
    • Communication Is Key - Should you default on your loan, your cosigner may see a steep drop in their own credit. It’s crucial to communicate with them throughout the repayment process and let them know if you’re unable to pay your installments. 

    Try Online Lenders 

    If the steps outlined above still haven’t helped you to qualify for a loan due to bad credit, you may want to apply to an online lender that specializes in financing customers with FICO scores below 600. 

    • Online lenders offer quick approvals, paperless applications, and eligibility requirements that look beyond your credit score when approving your application. 
    • Some online loan companies specifically offer vehicle financing while others provide personal loans that you can use to buy a car. Using your new vehicle as collateral may help to secure a good interest rate - but if you miss payments or default on the loan, you risk having your new car repossessed. 
    • You’ll want to compare quotes from several lenders to make sure that you’re getting the lowest possible APR on your loan. Make sure that the monthly repayment they quote you is affordable in terms of your current budget. 


    Having bad credit shouldn’t prevent you from owning a vehicle. By improving your credit, saving up a 20% down payment, and exploring a variety of loan options, you’ll improve your chances of approval. 

    You’ll want to take some time to plan your vehicle purchase and put yourself in the best financial position possible before you make your loan application.