7 Tips on Getting a Better Deal on a Bad Credit Car Loan

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Automotive Content Editor

Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.

, Automotive Content Editor - July 26, 2021

Getting a bad credit car loan can be a sure-fire way to up your credit score, as long as you're paying all your other bills on time, too. However, just because you can get a bad credit auto loan now, doesn't mean you shouldn't work to give yourself the most advantages you can. Here are seven tips for getting the most out of your next car loan.

1. Check Your Credit

Knowing where your credit score stands and what's on your credit reports is a solid way to jump headfirst into car buying. Most auto loans are based, at least in part, on your credit situation. Borrowers with better credit scores tend to get lower interest rates, larger loans, and more vehicles to choose from.

If your credit situation isn't top-notch, you're not out of the running for auto financing just yet. Knowing where you're starting from gives you a good chance to do some research and see what kind of deals other consumers with similar situations have gotten. Additionally, when you know your credit situation you're not giving the lender a chance to bump you to a higher interest rate because you don't know any better.

Being a smart and prepared shopper is a great way to get a good deal on an auto loan.

2. Save a Down Payment

One of the best ways to get a good deal on a vehicle is to have a down payment prepared. In bad credit car loans, a down payment is typically required. The amount varies, but subprime lenders that work with credit-challenged consumers often require at least $1,000 down or 10% of the vehicle's selling price, sometimes whichever is less.

Even if you're not required to make a down payment, having one is a great way to save cash on your car loan. The more money you put down the less you have to borrow. This means fewer interest charges paid, and more money saved. Plus, if you use a large enough down payment you may be able to lower your interest rate or qualify for a wider selection of vehicles.

3. Know What to Negotiate

As a borrower with less than perfect credit, getting the most bang for your buck might be a necessity rather than a nicety – so it's important to know what cost you can kick to the curb before signing a contract.

Not all the charges and fees that show up on your buyer's order have to be paid for, so go through your contract with a fine-toothed comb before signing on the fitted line. Save money by nixing additional dealer options like fabric and paint protection, custom floor mats, VIN etching, and exorbitant documentation fees. Many of these can be opted out of, and those that can't be can usually be negotiated.

4. Shop the Right Lenders

When it comes to getting a car loan with a low credit score, it's important to work with lenders that know how to help. Not all lenders work with consumers who have credit scores below 660, which is widely considered to be bad credit. Most lenders use the FICO credit scoring model. If you noticed you have a low credit score when you checked, going to the right type of lender for your situation can make all the difference.

If your credit score is below 660, going to a special finance dealership that's signed up with subprime lenders is a good place to start. These lenders know that you're more than a credit score and look at other factors to determine your ability to take on a car loan.

If you've already been turned down by a subprime lender, you may not be out of options just yet. There are other bad credit auto lenders that help people get financing, sometimes without a credit check! These buy here pay here (BHPH) dealers, or tote the note car lots, are in-house financers. This simply means the dealer is the lender. Though they may be a good option for getting the financing you need, be aware that BHPH dealers only sell used vehicles and may charge a higher interest rate, especially if they don't check your credit.

5. Stick to a Budget

What does budgeting have to do with scoring a good deal on a car loan? Not much directly, but without a budget, you're more likely to be persuaded to shop for a vehicle that may be at the top of your price range or beyond. While there's nothing wrong with this, it can stretch your finances thin if you're not careful – especially if unexpected repairs come up.

To ensure that you're not getting yourself in hot water with a pricey auto loan, make sure you know how much you're already spending on bills, and how much of a car payment you're willing to make each month. Lenders always make these calculations when they're determining your eligibility, and you can too. These calculations are known as your debt to income (DTI) and payment to income (PTI) ratios.

Lenders prefer that you don't default on your auto loans, so they want to get you into something you can afford to pay off. As a general rule, most subprime lenders that work with bad credit cap your DTI at 45% to 50% of your gross monthly income, and they cap your PTI at 20% of your income, but the lower the better.

6. Be Realistic

Most car buyers have a dream car in mind, which is great, but know that it's not the time to finance your dream car when you have bad credit. Getting a reasonably priced, reliable vehicle that meets your needs can be the first stepping stone toward that dream car in the future, since the loan can help you improve your credit with on-time payments.

As a bad credit borrower, focus on getting a vehicle that fits comfortably within your budget, and one that's for your situation. Wanting a fancy new truck with a 4WD is one thing, but if you have a long commute on the expressway daily, it may not be practical.

With the prices of new and used cars rising year over year, finding a vehicle that's affordable on the upkeep may also be wise. Don't forget that an auto loan is just one part of the car buying experience, you also need to factor in fuel, maintenance, and full-coverage car insurance which is required when you're financing a vehicle.

Shop for a car that meets your needs, but remember that you don't have to settle for the first auto loan that falls in your lap. If you're set on a certain type of vehicle, you can rate shop to find a dealership that's offering it at the lowest cost. When you apply for multiple loans of the same type within two weeks, it's known as rate shopping, and even though all the inquiries from lenders show up on your credit report, only one hard pull impacts your credit score.

7. Let CarsDirect Help

Now that you know a few basics to get a better deal on an auto loan, it's time to put your knowledge to work. You don't have to do all the hard work on your own though. At CarsDirect, we're here to help you get the auto loan process started with ease!

We've been connecting bad credit borrowers with special finance dealerships across the country for more than two decades, and we want to do the same for you. The process is fast, free, and there's never any obligation to purchase. Go hassle-free finding a dealership in your area by filling out our car loan request form to get started!


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, Automotive Content Editor

Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.

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