Where to Get an Auto Loan with Bad Credit
Looking for an auto loan with bad credit? Take heart. There have been few better times in history for people with bad credit to get auto loans. Plus, you donít have to go to a special low-credit lender. You can still get a loan from the same four places everyone else does:
- Credit unions or banks
Where to Start Your Auto Loan Search: Credit Unions or Your BankBefore you even make a decision about which model or make, go to your bank or credit union. Of course, you can't get those amazing no-interest car loans from the bank, since they're promotional tools used by the dealers and manufacturers to sell cars. But if you have truly bad credit problems, it's unlikely you'll get those amazing loans anyway.
Three other good reasons to go to a bank first:
- If you can get approved for a car loan in advance from the bank, it will give you more leverage in bargaining with dealers for a better rate. Youíll also know in advance how much credit you have available to buy a car.
- Credit unions generally offer the lowest interest of any financial institution--lower than any non-promotional financing a dealer or manufacturer could offer. Historically, credit unions would be especially picky about granting loans to the credit-challenged. But today they're much more likely to consider the whole picture of your finances, especially if you have an account with them.
- Your credit union or bank may be more likely to bend their credit guidelines if you have had an account with them for a while--preferably more than one account. Try to arrange a meeting with a loan officer so you can explain any bumps in your credit history.
Auto Manufacturers: Great Loans if You Can Get ThemYou see the commercials by GM, Ford, Chrysler and the rest all the time: "no money down!" "no interest for one full year!" If your credit issues were relatively minor, or well in the past, it's worthwhile to research the credit requirements for the loans. You may be surprised to find you qualify. You may also be able to negotiate getting promotional financing in exchange for putting a large chunk of the money in a special account to cover any defaults.
Car Dealers: Borrower BewareYou know all the awful things that get said about car salespeople? It's all true. At least, you should assume the worst. You certainly can get a great deal from a dealer, but only if you do your homework, check every letter of the agreement, and don't let yourself be hurried. Here are a few tricks to watch out for:
- The negotiations over the price you'll pay, the terms of the loan, and what you'll get when you trade in your old car are really three separate negotiations. Donít let dealers bundle them together. Dealers often play a shell game, passing costs from purchase price to loan to trade-in offer. They may dazzle you with low interest on the loan while your trade-in gets nothing and you pay well over Blue Book value.
- Dealers like to give the impression that you have to buy your car on the same day you first show up to the dealership. But no great car-buying decision was ever made in the heat of the moment. Sleep on the decision, talk it over with friends or relatives, and compare one dealer's offer with another's. Time is on your side: those cars sitting in the lot aren't getting any newer.
- Be especially careful of dealerships that advertise bad-credit auto loans. Those dealers tend to be particularly skilled at hiding reasonable loan interest behind a horribly overpriced car. If you do go to one of these dealerships, make sure you've researched car price, loan terms, and trade-in values thoroughly. Go over the contract with a magnifying glass.
Online Loan ApplicationsDonít feel like discussing your bad credit in person with a loan officer or car dealer? You can apply for an auto loan online. While applying online may not let you make your case in person, it does have four big advantages:
- Much easier and faster to compare the rates of different lendersóno pounding the pavement, and by the very nature of the web, everything is in writing.
- No one staring you down trying to get you to take a loan you donít want.
- Much easier and faster application process.
- Usually, a much faster acceptance. Some websites will even give you an instant preliminary decision (a human being will usually have to look at the results one more time before the money goes into your or the dealerís account).