Can I get a loan for a car? With bad credit?
Let's look at the essential requirements for getting a car loan.
When you apply for a car loan at a bank, credit union, loan company, or dealer, the lender wants to make sure he's not taking too much risk and he wants some assurance that he'll get his money back. So he'll want to take a look at a number of things about the applicant, as follows:
Age - You must be at least 18 years old to sign a legally enforceable contract, such as a car purchase agreement or car loan agreement or buy insurance. Otherwise, a family member must sign.
Credit worthiness - Does the applicant have an established credit history and good credit score? Has he had a bankruptcy in the last ten years or a car repossession in the last seven years? How has he paid on previous loans and credit accounts? Been late numerous times? Missed payments? Defaulted on loans?
Income - Does the applicant have a steady income that is sufficient to make new loan payments? Can he prove the income he claims? How long has he been receiving income?
Debts - Does the applicant have excessive debts, compared to his income? Will his debts prevent him from being able to handle new loan payments? Are his credit cards maxed out? How many credit cards and accounts does he have?
Loan-to-value ratio - Considering the value of the car being purchased, is the applicant asking to borrow more than it's worth – more than 100%? Will he be making a down payment? How much? How old is the car, and it's mileage? Will the car still have value by the end of the loan, or is it too old for a loan?
So what does all this mean? It means you may have problems getting a car loan for more than a car is worth or if you have poor credit, insufficient income, and excessive debt.
What can I do to get a loan?
In borderline situations where your credit is not too bad or when other factors such as income or debt are not total showstoppers, you will likely be able to get a loan, although at a higher-than-normal interest rate. You may have to do some shopping around because many many lenders now require a high credit score to get approved at all.
One reputable online auto loan company we are familiar with is up2drive.com
who offers car loans to people with less than perfect credit. You can get a free no-obligation quote by simply filling out a short form. You'll know almost immediately if you are approved.
If your credit is very bad, say below 600, you may have problems getting approved for a car loan. In that case, your options are more limited. If you don't know your credit score, you should. It is important. Get it from MyFICO
. Here's some possible solutions:
Buy-here-pay-here dealer - A buy-here-pay-here (BHPH) used car dealers sells cars and finances his own loans ("we finance anyone, regardless of credit"). They don't check credit but charge very high interest rates. You can find BHPH dealers in almost every city and town. There is one national dealer, Drivetime.com
who has locations around the country.
Get a co-signer - A co-signer is someone who agrees to take over your loan payments should you not be able to do so and you miss payments. A co-signer's income and credit score help you qualify for a good loan, but the car is still in your name, assuming you are at least 18 years old.
Borrow from family or friends - If you have bad credit and no co-signer, you could consider getting a loan from family or good friends. This doesn't help build your credit as does having a co-signer, but it might be a solution when there is no other.
Save to buy with cash - You could consider saving enough cash for a cheap "starter" car and trade up later when your credit and finances improve. Here's an article that might help: How to Find Cheap Cars for Sale.
How much are the monthly payments
Monthly car loan payments depend not only on the price of the car, whether you make a down payment, and how much, the loan term (months), and the interest rate (APR) that depends on your credit score. Here's a calculator you can use to play around with the numbers to find an affordable monthly payment: Used Car Loan Calculator.
Summary
Unless you have very bad credit and limited income, you will be able to get a car loan. Otherwise, your options are limited but there are still possible solutions for you.