Bad credit will affect your finances in many ways, but that doesn’t mean you’ll never qualify for a loan. For example, the right approach will allow you to secure a car loan even if you have less than desirable credit.
If you find yourself in this position, here are three things you can do:
1. Decide how much you can afford
You shouldn’t buy a car — used or new — until you know exactly how much you can afford. Doing so increases the risk of overspending, which can result in serious financial concerns in the near future.
Decide how much you can afford by reviewing the finer details of your monthly budget. Answer questions such as:
- What is your current monthly payment?
- What are the other expenses associated with car ownership?
- Is your income stable?
It’s these types of questions that will lead you toward a better understanding of how much you can afford.
2. Save for a bigger down payment
The more money you put down, the less risk the lender takes on. In fact, depending on your credit score, many lenders will require you to make a sizable down payment.
Even if it takes you a bit longer to save a bigger down payment, it’s often worth it in the end. Not only does it improve your odds of approval, but it also results in a lower monthly payment.
3. Consider all your financing options
You should never limit yourself when shopping for a car loan. Doing so minimizes the chance of securing the best possible financing for your vehicle and financial circumstances. Here are some options to consider:
- Local lenders: Do you have a relationship with a local bank or credit union, such as where you have your checking and savings account? This is a good place to start your search.
- Online lenders: Growing in popularity, online lenders make it easy to borrow the money you need without ever meeting in person.
- Car dealerships: Most dealerships have good relationships with a large number of banks and finance companies. You can lean on them to find you a competitive loan. Just make sure they have your best interest in mind.
Are you beginning to realize that it’s possible to get a car loan with bad credit?
Even though it can throw some challenges at you, don’t let your bad credit bog you down. Consider all the options above, create a strategy, and then take the appropriate action.