Poor Credit Auto Loans

Autos are a great investment, or at least they can be. A car is useful for most people because it allows them to get from place to place easily and efficiently. For those who need transportation in order to perform their job, a car not only makes sense but it's vital. 

However, buying a car with bad credit is a daunting task, as banks and lenders often require borrowers have excellent credit histories before approving them for loans. But there is hope if you have experienced past credit problems – you may still be able to purchase the auto of your dreams! Here is how to get an auto loan with poor or bad credit.

Getting Approved With Poor Credit

Getting approved for a loan is not as difficult as you might think. 

You have three options:

1. Check with your current bank or credit union first. If you have had a checking account with a financial institution for more than six months, odds are, the bank will be willing to work with you to find an auto loan that works for both of you. 

2. Auto dealerships offer to finance. Even though car dealerships do make their profits by selling cars, they also make money through financing because many people can't afford to pay for their entire purchase price upfront. Just like banks and credit unions, these companies want to make sales and therefore may be willing to work out deals (and often at better rates). 

3. Use an online finance company. The use of online finance companies is a growing trend among borrowers because it often means easier "no-hassle" credit approval. Many people turn to these sites for help with bad credit auto loans.

How Much Will You Pay?

The interest rates on auto loans can be about the same as those charged for mortgages and home equity lines of credit, so if you have good credit, you will pay less than if you don't when looking to get an auto loan. For example, in 2021 the national average annual percentage rate (APR) was 3.64% for a new car and 5.35% for a used car. If your score is not stellar, however, expect to pay almost double that amount in interest and fees.

What Are the Requirements?

Car dealerships, banks, and credit unions will require you to provide certain information in order to get an auto loan with bad credit. Be prepared to prove your identity by providing a driver's license or state-issued ID card, social security number, and proof of current address (a recent utility bill). Additionally, some institutions may ask for a co-borrower if you cannot prove your income. At the very least, most institutions will require a down payment on a car with poor credit, although 25% or more is common.

Before purchasing a new or used vehicle from any dealership or private seller make sure that you check out their reputation online at sites like Carfax and Autocheck. These companies allow consumers to purchase a vehicle history report, which will show you the car's maintenance records, accident reports, and damage information. A quick search can help you make sure that the vehicle has not been totaled or salvaged. Even if you are purchasing from an individual seller, it is important to do your homework first!

If you have bad credit, getting approved for an auto loan with little money down can be difficult due to high-interest rates. What's more, even though most dealerships offer financing through larger financial institutions, some also offer their own in-house lending programs. These vehicles are often referred to as "Buy Here Pay Here" cars because instead of working with outside banks, these companies finance their own vehicles. Before signing any paperwork at these lots, make sure you know what kind of deal you are making.

While not all dealerships offer in-house financing, some may be willing to work with your credit history by setting up a payment plan that works for both the dealer and the customer. This option is often charged at a higher interest rate than other options but sometimes offers lower monthly payments. If this kind of option interests you, do your research before signing any contracts or paperwork because these kinds of loans can quickly get out of control.

Conclusion

When it comes to auto loans with bad credit, getting approved can be difficult but it doesn't have to be impossible! Check with your current bank, dealership and online finance companies to find an option that fits within your budget constraints.