So… maybe overextending yourself on those shopping sprees at Macys and Best Buy wasn’t the greatest idea; or those six months out of work is finally taking its toll, and your credit report is there to remind you of it. If you are in need of a new car and have to borrow the money, all is not lost. The first step to securing a car loan with bad credit is to know the facts.
If you want a new car and are seeking a car loan, it is essential to find out exactly what your credit score is. You can do this relatively painlessly online through any of the three credit bureaus Trans Union, Experian, or Equifax. Once you have determined your credit score it is also recommended that you learn how to interpret your score and investigate strategies to improve it. Your credit score is not written in stone and can always be enhanced by paying your bills on time, and avoiding accumulating too much debt. Look to sites like Credit Scores Demystified and Understanding Your Credit Report for more information.
Most banks typically look for burrowers with a credit score exceeding 620. If your score is less than this number you will most likely be considered a subprime borrower. What this essentially means is that you are now in the less-than-desirable category for a car loan. This doesn’t mean that you will not be eligible for a car loan. There are plenty of lenders that focus on subprime borrowers, but with a catch. Your loan will be at a much higher interest rate then other borrowers with a higher credit rating.
If you have determined you are a subprime borrower, there is no need to get discouraged if a dealership will not grant you a loan. Dealerships do not usually offer the most competitive rates for auto loans. On the other hand, the bank where you have a checking or savings account would be a great place to start looking for an auto loan. Many banks have entire departments dedicated to providing loans to those with flawed credit, and they tend to look more favorably upon applicants who are current clients.
Remember even if you are a subprime borrower rates will vary from lender to lender; take the time to look around and see what deals are available. There are plenty of lenders available who will be willing to grant you a loan and get you into a new vehicle.
Hot Tip: With proper attention paid to the state of your credit, you could conceivably hoist yourself out of the subprime territory in as little as two or three years, and will be eligible for refinancing at a much lower rate.
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