When it comes to getting approved for an auto loan from a financial institution, your credit history and score play a very important role. The higher your credit score, the better your chances of getting a loan at a reasonable rate of interest. Having a less-than-desirable credit score can make it tough to get an auto loan that fits within your budget. But don’t lose hope! We’ve got some tips to help you score an auto loan even if you have a poor credit score.
Pay Off Your Debts
Try to reduce your credit card balances by as much as you can, as this move will reduce your debt-to-income ratio. The lower this ratio, the better will be your credit standing! It is essential that you do this before applying for an auto loan.
Approach Multiple Lenders
Once your credit score has improved, shop around at various lenders. This will help you get the best rate possible. You can approach your regular bank or credit union (with whom you have regular transactions), and since you are already known to them, they may be ready to accommodate your auto loan request favorably.
Short-Term Loan
If you can, it’s a good idea to opt for the loan with the shortest term (period of repayment). A short term will, of course, mean you will be paying more every month, but this will also mean that your loan balance will be paid off faster, helping you save money on interest.
Get a Co-Signer
Nothing helps a person with bad credit looking for an auto loan more than getting a co-signer. A co-signer is essentially an individual with good credit scores who is ready to sign an agreement with your lender to confirm that they will pay off your loan if you fail to do so. Often, parents with good credit scores co-sign for their children.
Get Pre-Approved
With bad credit, you cannot hope to buy the car of your choice. You will likely have to stick to a basic model. To minimize your disappointment when visiting dealerships, you could get yourself pre-approved for a loan. With a pre-approval, you can be sure of how much you can borrow. This, in turn, will help you shop for a car within your means.
