Unfortunately, all it takes is one big financial misstep (or several smaller ones) to damage your credit. And when you have poor credit, getting approved for loans can be difficult. Even if you are approved for a loan, you may end up with unfavorable terms, such as a high interest rate, that will cost you additional money in the long run. The good news is that if you have less-than-perfect credit, there are some steps you can take to get approved for an auto loan with decent terms.
Scrutinize Your Credit Report
Start by ordering a free copy of your credit report from one of the three reporting bureaus. Carefully scrutinize your credit report, being on the lookout specifically for errors, mistakes, or fraudulent accounts. If you notice any issues impacting your credit, you need to file a formal dispute with the credit bureau and provide supporting evidence of the error. Once this is cleared up, your credit score will likely have improved.
Find a Co-Signer for Your Loan
If you have a friend or family member with good credit who would be willing to co-sign onto your loan, this can also make it much easier not just to get approved for a loan, but to enjoy favorable loan terms as well. Just be aware that your co-signer will be legally responsible for your auto loan payments in the same way you will be, so if you fail to make a payment, his or her credit could be on the line.
Borrow Directly From the Dealer
Many dealerships these days offer "buy here, pay here" financing, which is often geared toward people with less-than-ideal credit. These types of loans allow you to forgo a lot of the strict credit requirements set forth by major lenders, such as banks and credit unions. Instead, you're being financed directly through the dealership.
Size Up Your Down Payment
The larger the down payment you can make on your vehicle, the less you'll need to borrow. And the less you need to borrow, the easier it will be for you to get approved for an auto loan. Save up as much as possible for the down payment on your next car and you can also enjoy smaller monthly payments or pay off your loan sooner.
Getting approved for a great auto loan with poor credit may seem like a challenge, but by following these tips, you can make it happen