Tips for getting a car loan with bad credit


If you have bad credit, it can be difficult to get a car loan. Lenders are often hesitant to approve loans for people with bad credit because they think these borrowers are more likely to default on their loans. However, that doesn’t mean it’s impossible to get a car loan with bad credit. You can get the loan, but you will pay more than the person with good credit. You can take several steps to improve your chances of being approved for a loan. In this blog post, we will discuss tips on how to get a bad car loan.

Know your credit score and report

Even if you have bad credit, you are still entitled to a free credit score. Knowing your score will tell you what kind of deal you will get on your loan. According to nerdwallet, a FICO credit score is the gold standard and is based on various measures of your credit history. They also have a system that calculates your risk score. Accordingly, the higher your score, the better offers you will get. Once you have your credit score details, find ways to improve the information that lenders will use to decide where you stand. You can check the report for errors, such as accounts showing overdue payments, but you paid them on time. Are there any low balances you can afford? You can also search for overdue accounts that can be updated.

Show them you can afford to repay the loan

Apart from the credit score, lenders will also look at your income and debts to decide if you are a good candidate for the loan. To improve your chances of being approved, it’s important to show the lender that you have a stable income and low debt. Support your response by documenting the following;

  • Source of income – Proof of employment in the form of pay stubs, offer letters, or tax returns. For borrowers with bad credit, lenders are interested in stable income such as employment. Although others consider other sources like alimony, disability or social security payments.
  • Debt Ratio – To be on the safe side, this ratio should be below 50%. This means that your monthly car payment should not exceed 50% of your monthly income. You can calculate this by adding up all of your monthly debts (including your car payment) and dividing by your gross monthly income.
  • Credit Usage – Another factor that lenders will consider is how much available credit you are using. This is also known as the credit utilization ratio. Most lenders want a borrower to spend less than 30% of their available credit. In the event that credit usage is high, but you have paid off balances recently, present proof to the lenders.
  • Payment history – Lenders will also look at your payment history to get an idea of ​​how likely you are to repay your loan. They will look at factors such as whether you made your payments on time and how many times you were late. If you’ve ever been late repaying loans, have a reasonable explanation and let them know the problem won’t happen again.
  • Payment to income ratio – To find out if you can afford the loan you are applying for plus insurance, lenders will calculate your payment to income ratio. This is the ratio of loan plus insurance to total monthly income and must be less than 20%.
  • Reduce the amount of loan you need to borrow
  • Lenders will think about the risk of loss if you can’t make the payments and offer you a loan based on that. If you ask for a large amount, the risk of loss for lenders increases. This may cause them not to approve the loan. When you borrow less, you increase the chances of your loan being approved. To reduce this risk, try to;
  • Make the highest possible down payment and finance the rest. This shows lenders that you are committed to repaying them.
  • Trade in an old car to reduce the amount you need to finance.
  • Look for a less expensive car with the features you want.

Compare lenders

Many types of lenders offer loans for bad credit, such as banks, online lenders, and credit unions. They all have different terms and conditions. With bad credit, some lenders may take advantage of you because they know you’re desperate for a car. According to credit karma, it is important to compare different lenders to get the best deal for you. There are a few things to consider when comparing lenders, such as:

  • The interest rate you will be charged
  • The amount of your deposit
  • The term of the loan
  • Any origination fees or prepayment penalties
  • Annual Percentage Rate (APR)
  • Whether the loan is secured or unsecured

Even if you’re in a rush to get a car, take the time to understand the details of the loan to avoid confusion that could cost you dearly later. Do the following;

Opt for loan terms, not a monthly payment

You must decide on a loan term and not the monthly payment. This way, you won’t be in a tight spot when trying to make payments each month. According to Bankrate, monthly payments can be great, but you end up paying more interest if you’re not careful.

Confirm that the terms are final

Before you sign the papers and take out a car loan, be sure to read everything, including the last few pages. If you don’t agree with anything written there, you can change it before signing and it would be much better than just wasting your money. If you were financed by a dealership, they can take advantage of customers who don’t complete their paperwork.

Do not pay prepayment fees

To protect yourself, don’t let your lender charge you a prepayment fee. These fees depend on your interest rate and are usually very high. This can represent up to 100% of the total amount you will have paid during the term of your loan. If you ever find yourself in this situation and are trying to find a way to overcome it, do not hesitate to ask your lender for help. It is important to know that you may have the option of paying these fees.


Bad credit and auto loans are difficult and frustrating to deal with. By following the advice in this article, you will get the best possible loan for your situation. If you have bad credit, you can get an auto loan as soon as possible.


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