Bad Credit Car Loan Tips

Do you have bad credit? If you do, then I probably don’t have to tell you that it can be a real headache. It might also be discouraging you from thinking of purchasing a new car. I mean, who is going to give you a car loan, right?  Why even try? Well, the truth is that bad creditdoes not mean that you can’t get a car loan. And it does not necessarily mean that the only way you will get that loan is to concede defeat and accept whatever rate and terms come along. The key is to be prepared and know what to expect before you shop. Below are a few tips for those of you with bad credit to help you drive off of the dealer lot without breaking the bank in the process.

Check your credit reports.

When was the last time you actually read your credit reports? I know that when you have had a painful relationship with credit you tend to want to turn a blind eye to such things. But that would be a mistake. Go online and pull up your free reports and check them for any mistakes. You will be surprised how often they show up. If you find inaccuracies, get them corrected ASAP, before you apply for your loan.

Know your credit score and give it a raise.

I am sure you already know that if you have sub-prime credit (a score of 620 or lower) you are going to face a higher, possibly much higher, interest rates. One thing you might consider is waiting a few months and getting that credit score up a bit. You can do that by maintaining an on-time payment history on your bills. You will probably have to give it at least six months or so, but if you keep your payment history clean during that time, you will likely see your score go up. And that can mean an interest rate that goes down. By the way, don’t stop working at raising your credit score. The higher your score, the better you’ll do next time you go looking for a loan. Also, a higher score might mean refinancing your car loan in a year or two at a lower rate.

Shop around.

Now that you are up to date on your credit, it’s time to go shopping. Not for a car. Not yet, at least.  I’m talking about shopping for a loan. Start with your local bank or credit union, the one you currently do business with. That relationship might help you get a better deal. Check as many other lenders as possible, also. You will be surprised to learn how different each lender can be in terms of rates. And remember, you are almost always better off securing your loan from someone other than the car dealership. They are looking to make some money off of any loan through them and that will mean a higher rate for you.

Think terms, not monthly payment.

OK, I know that you have to think monthly payment. You have to fit it into your budget, of course.  What I mean here, though, is that if you only look at what you will be paying monthly, and not at other terms like the loan period, you are going to end up shelling out a whole lot more for that car than you should. Experts will tell you that you should not look at a loan period longer than three years. And you really, really, really should not go for anything past five years. The bottom line is this: if you have to go for a longer loan period to get the payment down to where it fits your monthly budget, it is time to look at a cheaper car. Which brings me to my final tip:

Be realistic.

I know that you have probably got your heart set on that one particular hot, new model. The one loaded with everything you have ever wanted. And you want it today. But the truth is it may also be the hot, new model that you really can’t afford. Let’s face it, buying things you really could not afford may be part of the reason you are struggling with bad credit now. So, before you rush down to the dealership, know your credit, know your budget and know your needs. You may be much better off with a simpler, cheaper ride for the moment. It may even be a used one. Your goal should be a loan that you know you can afford and make the payments on time so that it will help you improve your credit, not make it worse. That way, the next time you go shopping for a new car, you won’t have to worry about bad credit at all.