How to qualify for a good car loan with bad credit
By David Maillie
With the current economy it is actually quite common to find many people with limited or bad credit. This could be the result of losing a job, a pay cut or demotion, a health crisis, bad investments, etc…As a matter of fact over half of the people in the U.S. now have what is defined as bad or limited credit. It used to be thought that bad or limited credit would, in most cases, prevent one from ever getting a car loan. Regardless of what might have caused the bad credit everyone deserves to be able to have reliable transportation and a reasonable car loan. Here’s how:
First, do you know what your credit is? Do you know how to read it and what the score means? Most finance managers at car dealerships are trained to use lots of red ink and circle anything even remotely questionable so as to make your report look like it failed. The more they can degrade your credit report and make you feel like you are not worthy of good rates, the easier it is for them to jack the rates and sell more unnecessary and highly overpriced aftermarket items like paint protection and other programs that are only worth a $5 - $10 bottle at Walmart. You need to go in prepared.
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To be properly prepared you must first pull your credit yourself. You can easily do this online. You can do this through any of the three major credit bureaus (Experian, Equifax, and Trans Union). All three let you do this through their websites and will also let you pull all three reports at the same time for one price of between $20 and $50. This all three report with credit scores is the one you want. You can get a free report, but it will not give you your credit score and it will not explain anything to you. It will be like looking at a hospital bill. The all three together credit reports will explain your score and all entries whether good or bad.
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It is a good idea to review these reports for errors – yes they do happen and it is actually said that over 70% of credit reports contain errors that can and will affect your credit rating. If your score is 600 and above you will have no problem getting a car loan. If you are on the lower end of the 600’s you will most likely pay a higher rate than someone with a 700 or 800 (850 is the highest or perfect score). If you do have derogatory entries (don’t feel bad as most people have at least one or two) there is much you can do to fix these so your credit score will go back up. First write a letter to the corresponding credit bureau contesting it. The credit bureau has 30 days to contact the creditor at issue and obtain proof. If they cannot provide satisfactory proof that the debt is valid and current than it must be removed.
Also, there is a ageing limit of 7 years (10 years for a bankruptcy) for most debts. Check the original date the item in question was reported or recorded with the credit bureau. If it is over 7 years it must come off and request this (except for bankruptcy). Many creditors are lazy and will not correct entries where needed due to a payoff, etc… They only care that they get their money and they don’t care about you. If you feel something needs to be updated or corrected definitely tell the credit bureau in writing (this is the only form of dispute they will accept).
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That is how to repair your credit in a nutshell and best prepare you so you get a good rate and term on a car loan. Even without this most people will qualify for some kind of financing on a car loan. The worse your credit score the higher the rate and the more money the financing institution will require as a down payment. For those with the worst or no credit there is also the loan sharking of car loans – Buy Here, Pay Here (BHPH). This is where some used car lots carry the note themselves and you will make your payments directly to them. This will usually have high rates (20-29%), shorter terms and weekly or bi-weekly payments. They will also repossess your car if you miss a payment.
The best advice is to pull your credit report, take the time to have any wrongful or debatable entries contested and do what you can to repair it. Then first shop for a car loan online. You will usually get a much better deal than at your dealer (car dealers will add a hefty markup to everything they touch). Then go in to the car dealer and negotiate – you have the power as you no longer need their financing. The average person that does their homework before obtaining a used car loan, regardless of good or bad credit, saves on average over $1500.
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