Job losses and the credit crunch have left many people out in the cold when it comes to buying new cars. That doesn’t mean that people with bad credit can’t get auto loans, but it does make things much more difficult. If your credit is not so great, check out our tips for using an auto loan calculator to help you figure out your monthly payments, and find a lender who is willing to work with you.
Lenders are a bit gun shy these days, especially when it comes to subprime lending. Auto loans are different from other types of consumer lending, however, because the vehicle itself serves as collateral on the loan. Additionally, unlike homes, repossessed vehicles can easily be resold, meaning lenders aren’t exposed to much risk when making auto loans to people with bad credit.
Still, if your credit is bad, lenders aren’t going to be knocking down your door or sending you a flood of loan applications. Here’s what you can do to make yourself a more attractive borrower:
- Save up a large down payment. Your loan amount will be less, and you’re more likely to qualify. Use an auto loan calculator to see how much of a down payment you’ll need to get the loan amount down below your borrowing limit.
- Buy a car for less than its Kelley Blue Book value. This is another way to drive down the total loan amount, and it may not be as hard as you think. Tough economic times mean that many families are getting rid of extra vehicles, and they may be willing to accept lower offers just to get some cash out of a car they don’t use much, or pay off their own auto loans.
- Extend your loan term to get the monthly payments down. Lenders can see if your income and current debts will enable you to afford the payments on the loan. You will end up paying more for your car if the repayment term is too long. To avoid paying too much, look into auto refinancing after a couple of years of on-time payments. Your credit score should have improved by then, and you’ll qualify for lower interest rates.
- Make sure you can afford the monthly payments. Lenders aren’t likely to offer you a loan if they know you can’t afford the car payments. Use an auto loan calculator to figure out how much car you can really afford.
- Have someone else cosign on the loan, if possible. Your interest rates and monthly payment should go down, which will help you in the long run.