Getting a car loan is very easy if you have a good credit score that meets the lending criteria of the financier, but when you have a poor credit report or no credit at all, the exercise can become really difficult. If that’s your hard reality, then you need to consider taking a few steps so that you can qualify for a car loan:
Involve a Cosigner
If you have credit that’s so bad that you don’t qualify for a car loan, you can improve your chances by getting a cosigner on board. If you have such a person then the lender will consider the financial strength and credit score of the cosigner instead. Essentially, including a cosigner enables you to leverage his good credit to cover the deficiency of your own poor credit.
However, you need to appreciate that with this action you’re exposing the cosigner to the risk of the loan. This means that if you don’t pay the monthly installments on time, the cosigner will be held responsible. Also, if the loan turns bad, it will have a negative impact on not only your credit score but also that of the cosigner.
Dealer
It’s also possible to get a loan for a car even if you have bad credit by approaching a car dealer that specializes in such transactions. Many dealers, especially used car dealers, are quite willing to extend car loans to their customers. These dealers don’t have any interest in your credit history; as long you can prove that your current income is sufficient to cover the monthly payments, you can find yourself at the wheel of a car. However, you have to be ready for car loan rates that are pretty steep.
It is also quite likely that you’ll need to pay your dues more frequently; maybe weekly instead of monthly that is the norm of the conventional car loan. Increasing the frequency of payments increases the dealer’s chance of getting his money back because the payments are more affordable for the customer.
Peer-to-Peer Loans
If your credit is so bad that you’re finding it impossible to get a loan to buy a car then you can consider peer-to-peer loans that are basically transactions between two individuals. Instead of a traditional lender giving you the loan, it is extended to you by an individual who has excess funds that he’s willing to deploy in this fashion. The repayments are also made back to the individual lender. There are quite a few online resources that can help you to find such a lender.
Building Credit
Not having a decent credit history can prove to be very cumbersome for a lot of financial transactions, including buying a car, which is why it’s important for you to embark upon a conscious plan to building and improving yours. The first step to take is opening a bank account and ensuring that you maintain a decent balance without getting overdrawn or your checks bouncing. Apply for a credit card, make small purchases with it, and ensure that you pay back the entire balance on the due date every month. Never go above your limit as that will have a negative impact on your credit. If you can help it, don’t change jobs or residences frequently because creditors view such activities as having negative implications on the stability of the person.
Conclusion
Buying a car with bad credit can appear to be quite difficult; however, there are a number of options that you can try. Since most methods entail paying a higher rate of interest, it’s best to try and build a stable financial history and a good credit history that will serve you well in the long run.
Photo Credit: Jerry Huddleston
Having a good credit history is very advantageous in making the car loan approved. I always use that technique, but most often, I make big purchases to get some reward points, and I make sure I pay them what is due.
Good for you, Liz!
Maybe if you can’t afford a car loan, you can’t afford a car? How about getting a part time job and saving enough for a beater car for under a thousand dollars, and then using that car delivering pizzas to earn more money to buy a better car?
Thank you for mentioning that the co signer of a loan is on the hook financially when the borrower stops making payments (which usually happens, hey, THEY have the car!) If the bank won’t lend to a person folks, you ought not to lend to the person because they will NOT repay the loan, THAT IS WHY THEY HAVE BAD CREDIT IN THE FIRST PLACE.
When I bought my new car 12 years ago I opened an online bank account. Every month $200. was automatically transferred to my online account. My old van was still running but I bought a beautiful new van for $21,000. and use it occasionally for trips more than 50 miles from home (AAA gives a free 50 mile tow). I continue to put the bulk of the miles on the original vehicle, beat it up carrying things, and enjoy the fact that it still works. I continue to have $200. per month deposited in the online account for the next car. I drove my share of beater cars while saving up to buy a better one. I hear the squawks already, “But I don’t have $200. extra a month!” Solution: GET A SECOND JOB, SELL STUFF YOU DON’T NEED, STOP SPENDING, CUT THE CABLE, NO MANI/PEDIS, NO LUXURIES, BUY YOUR CLOTHES AT YARD SALES, TELL THE KIDS LIFE IS NOT FAIR AND THAT SANTA DOESN’T BRING EVERY FAMILY GREAT BIG EXPENSIVE STUFF. The peace of mind from having the money there when you need it makes life really pleasant. I still have a part time job, recycle dish water for the porch plants, recycle everything, shop for used clothes, raise vegetables and can some for the winter, pick up interesting or useful stuff from the trash on the curb and sell it on Craigslist.
When hunting for my new van I came across these figures, not sure if they are accurate or where I read them, “Leasing a car the dealer makes the dealership over $2,200. Selling with a dealer financed loan earns them $1,200. and selling a car for cash earns them $75. When I went to buy the van I’d found online and with phone calls, the seller said to me, “Are you here to lease or to finance?” When told, “To buy with cash.” there was a stunned, awkward silence. What I learned is that you ought to lie (not normally a good idea but we are negotiating with a car dealer) and say “finance”. Then negotiate a great deal and at the last minute put $5,000 or what they will allow on your mileage credit card (I’m a mileage junkie and pay off my card in full twice a month), and pay cash for the rest.
It’s interesting to read about some of the ways that you can get a car loan with bad or no credit. It makes sense that having a cosigner could be a good way of getting a loan because it’d allow the lender to worry less. It’s something to remember to make sure the loan I get is easy and doesn’t have a high interest-rate.
In India due to the recent RBI Rules and Regulations getting a loan for bad CIBIL rating will be going to be tougher.