Although you often hear about how important good credit is in making a major purchase, there are nonetheless plenty of avenues for people with poor credit because of free market competition. This is especially true when it comes to buying a car; given that hundreds of millions of Americans drive, the demand is always there and automakers compete furiously to receive your business.
As such, it is quite possible to obtain one of the bad credit no down payment auto loans offered by lenders who are willing to loan to subprime borrowers. Generally, your interest rates will be higher in order to cover the risk they’re assuming by lending you money; but the trick is to shop around to find a bargain that’s considered for a steal in your credit score bracket.
The Sources to Check First
First of all, if you already own credit cards from major lenders such as Capital One, you might want to try them first to see their financing terms. After all, they have immediate access to your credit card payment history with them, and they possess an in-house Auto Navigator tool that streamlines the pre-approval process.
There is always the chance that you may find some of the terms a bit restrictive – such as the used-car limitations, and the fact that you can’t obtain a loan for car lease buyouts and private seller acquisitions. In this event, you can always look elsewhere for a car loan.
Seek Out Sources for Car Loans
This might seem obvious at first glance; but it’s an important point to drive home. Too many people with bad credit opt instead to pursue lenders that specifically target people with low credit scores for any kind of lending. This is a bad idea, in general; your annual percentage rates will be sky-high with these lenders. It’s better to pursue sources that specialize in car loans:
- Big name, reputable online lenders
- Well-known national banks
- Regional banks
- Auto lenders with subprime lending options
The following rings true no matter who offers you an auto loan: the best deal will always be the lowest APR you can get, over the shortest payment period before the principal is repaid.
Although you’ll likely make some compromises if you have bad credit, don’t be swayed by the prospect of a lower monthly payment and longer payment terms as the better deal – it’s not. You’ll be paying far more than the worth of the car; and if you feel the need to take this deal, then you probably should put off buying a car for the time being.
Check to See If Your Credit is Actually Bad
Bad credit is, in part, contingent on what it is you want to buy. What does this mean? Well, for example, credit that is considered decidedly subprime for buying a house may actually be very near the subprime/prime dividing line when it comes to buying a car. This is why it’s important to shop around – your prospective lender may view your credit history in a more positive light than another would.
Auto loans are considerably smaller than mortgage loans, which means there’s always a chance your subprime credit score for the house is actually near-prime for the car. Check with each lender on your radar before you search specifically for subprime loans; you may end up being surprised that you can obtain a loan with good credit terms.