By the time you’re done reading this short post, you’ll see that getting a car loan is not difficult even if you have bad credit. While it’s true that the following can help anyone (no matter what their credit) secure a deal with an interest rate that won’t unduly tax their monthly budget, this is specially-designed for people with low credit scores. There are lenders who specialize in bad credit car loans, and here is what you should do before you approach them.

First – Check Your Credit History

Almost everything about getting a car loan depends on your credit history; in particular, your credit score. You can do this by ordering several versions of your credit history – don’t worry about the money, it’s free –  from Experian, TransUnion and Equifax. The federal government, in an effort to educate the public about the importance of credit histories, and to make them more accessible, requires these agencies to provide this information free once annually.

Once you have them before you, carefully check to see things that don’t match up. There’s no guarantee that these credit bureaus compile information accurately and, indeed, up to a quarter of Americans have some discrepancies in their credit histories. If you can get these cleared up, it may help raise your FICO score – which puts you in a position for a better interest rate.

 

Pay Down Your Credit Cards

This has the effect of improving your credit score directly. Paying your various credit card bills on time positively affects the credit utilization aspect of your credit profile. Insofar as lenders are concerned, it shows that you are a trustworthy borrower and they don’t have to increase your interest rates to counter the risk associated with lending to you.

 

Use Online Sources to Gauge How Much You Can Afford

Many people overestimate how much money they can afford on a car. The trick is to not see it as a monthly payment at first; check the overall price. Use an auto loan calculator to then calculate how much you’ll need to spend monthly, as well registration, insurance and gas. If you have bad credit, enter at least a 15% annual percentage rate (APR) for a given principal.

As you gather information on the length of loan terms, keep things in perspective. By this, we mean that if you’re paying for a car for 7, 8 years or more, then this car is too expensive for you and you need to downgrade. These loan terms are simply too long; hence the importance of looking at the total cost of financing, instead of the sometimes deceptive monthly payment amount.

Another way to tell if you’re paying too much is the percentage of the total you’re able to put down. A good estimate is about 20%; if you cannot put more than that down, you should either get a less expensive car, or put off buying one for a few months. This way, your credit score may increase (as long as you’re paying bills on time and not opening new accounts), and you’ll stack up more upfront cash.

A Sea of Lenders – Search and Don’t Settle

Your search for a lender should begin in the online arena. If possible, get preapproval from a source such as a big bank or auto loan company that specializes in helping people with bad credit. Once done, you have a lot more leverage in negotiations with an auto-shop lender. Your preapproval forms let them know they have to match or beat the terms provided – it’s all about business, and they won’t let a prospective client go if you’re well-informed about the interest rate you deserve.

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