Can You Get a Car Loan With Bad Credit?
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No matter how much you strive to be prepared for every situation, life has a way of throwing surprises our way. Perhaps you have just accepted a job in a neighboring town or bid farewell to the trusty sedan that accompanied you through your college years. The need for a new or pre-owned car can arise unexpectedly.
For many Americans, having an extra $25,000 readily available is not a realistic scenario, which is why the majority rely on auto loans. However, obtaining an auto loan is not always a straightforward process. Just ask someone with a less-than-ideal credit history. While it is true that having bad credit can add some complications, it is important to note that securing an auto loan is far from an impossible feat.
Car Loan Application (Photo: Reproduction/Envato)
Credit Scores 101
Prior to approving car financing, lenders typically assess a prospective buyer’s employment background and income records. They also examine the individual’s credit score, which evaluates their payment history, available credit limits, and outstanding debts. This information is used to gauge the person’s credit behavior and overall reliability in managing debts.
While the exact evaluation of credit scores can vary among lenders, they are generally interpreted as follows:
- Poor: 300 to 579;
- Fair: 580 to 669;
- Good: 670 to 739;
- Very Good: 740 to 799;
- Excellent: 800 and up.
On average, auto lenders prefer credit scores of 660 and above, but they are still willing to extend loans to individuals with lower scores. The initial step in obtaining a loan is to determine your credit score. If your score falls below the desired range, you still have options to secure a loan from one of the lenders mentioned below. Alternatively, you can take the time to address outstanding debts and improve your credit score before applying for a loan.
Car finance online (Photo: Reproduction/Envato)
Additional Considerations
A credit score is not the sole determinant when it comes to car loans. Banks inquire about various aspects and require specific documentation to be submitted alongside your application. While it’s essential to check with your lender regarding their specific requirements, the following list of key factors will help you get started:
Proof of Identity
Securing financing for a new vehicle necessitates proper documentation to verify your identity. A driver’s license or a passport should suffice in this regard. Additionally, a personalized mail item displaying your current address and name can serve as proof of residence.
Auto Loan (Photo: Reproduction/Envato)
Proof of Income
Banks evaluate applicants for auto loans based on factors such as pay stubs and employment history. A stable job can offset a negative credit score. Regardless, ensure that you gather copies of your recent pay stubs. For self-employed borrowers, providing tax returns from the past two years is crucial.
Understanding Your Budget
To determine if you can reliably repay your debt, the bank will assess your annual income against your yearly expenses. It is important for you to have a clear understanding of what you can realistically afford. Take the time to assess your finances using a pen and paper or a budgeting app of your choice. This will help you gain a better grasp of your financial situation and prevent overspending.
The Power of Down Payments
Never underestimate the significance of down payments. Even individuals with good credit should consider making a substantial down payment within their means. Down payments are more than just a formality; they save you money in the long run by reducing the loan amount, lowering monthly payments, and improving the loan term length and interest rate.
Car Loan (Photo: Reproduction/Envato)
The Best Loans for People With Bad Credit
Don’t underestimate the competitiveness of the lending market. There is a wide range of car loan options available for borrowers with bad credit. To help you in your search for a car loan with a favorable annual percentage yield (APY), we have selected a few noteworthy options below:
Carvana
APR: starting at 3.90%
Loan amount: up to $100,000
Minimum credit score: 450
Consumers Credit Union
APR: starting at 5.49%
Loan amount: no maximum
Minimum credit score: 620
MyAutoloan
APR: starting at 3.69%
Loan amount: up to $100,000
Minimum credit score: 575
Autopay
APR: starting at 2.99%
Loan amount: up to $100,000
Minimum credit score: 560
CarMax
APR: starting at 2.95%
Loan amount: Up to $100,000
Minimum credit score: none
This is merely scratching the surface. Trust us when we say that there are numerous online alternatives to explore. In addition to those, you also have a multitude of local banks and credit unions that cater to your area. With such a wide array of lenders to choose from, the options are nearly limitless!
Woman couting dolar (Photo: Reproduction/Envato)
Green Means Go!
As you can see, there are numerous car loan options available for individuals with bad or poor credit. Even if you are unable to secure a loan immediately, there are actionable steps you can take today to gradually improve your credit score over time.
Obtaining a favorable interest rate on an auto loan should not be a signal to overspend on a new car. The higher the vehicle’s cost, the more you will end up paying in the long run. It is essential to stick to your budget, consider offering a substantial down payment within your means, and regain control of your financial situation. By doing so, you can confidently get back in the driver’s seat.
