According to a recent report from FICO, the producer of one of the most frequently used credit scores, the national average credit score is at an all-time high of 716, unchanged from a year ago. FICO scores range between 300 and 850.
Your credit score is significant to your financial health. A low credit score can keep you from many things, such as getting a car loan, renting an apartment, applying for a job, getting cable or cell phone service, and even booking a hotel room.
A bad credit score can damper your finances in several areas of your life. Getting approved for a car loan is one way your credit score can negatively impact your life. However, car loans are easier to get with good credit than bad, like almost any financial transaction.
Keep reading to find out how you can get a low-interest car loan.
What Is a Credit Score?
A credit score is a number that represents your creditworthiness. It is based on your credit history, which records your borrowing and repayment behavior. The higher your score, the more likely you will be approved for loans and credit cards and get better terms.
A high credit score means that an individual is a low-risk borrower and is more likely to repay a loan on time. While a low credit score indicates that an individual is a high-risk borrower, they are more likely to default on a loan.
The Truth About Low Credit Scores
It is a common misconception that having a low credit score means you are a high-risk borrower. However, this is not the case. There are many reasons why someone may have a low credit score, and not all of them are indicative of poor financial habits.
Sometimes, a low credit score results from a limited credit history. You will not have a credit score if you have never taken out a loan or opened a line of credit.
Other times, a low credit score may result from making one late payment on a credit card. It is not indicative of a pattern of irresponsible financial behavior.
Many people have high credit scores but are still high-risk borrowers. So, don’t let a low credit score determine you from applying for car loans because they may not be as important as you think.
Check and Improve Your Credit Score for a Car Loan
If you’re looking to check your credit score, there are a few ways to do so. You can go through a credit bureau, such as Equifax or TransUnion, or you can use a free credit score service, like Credit Karma or Credit Sesame.
If you’re trying to improve your credit score, you can do a few things. You can ensure you’re paying your bills on time, keeping your credit balances low, and using a mix of credit products. You can also avoid opening too many new credit accounts in a short period.
Know How Much You Can Afford
It would help if you calculated your monthly income and expenses to understand how much you can afford to put toward a car loan. Once you know how much you can afford, you can start shopping for a loan.
There are a few things to remember when shopping for a loan with a low credit score. Look for lenders that specialize in loans for people with bad credit.
You may also want to consider a co-signer, someone with good credit who agrees to sign the loan with you. It can help you get a lower interest rate, and if you have a trade-in, you may also be able to use it as equity to get a lower interest rate.
Consider a Down Payment
A down payment shows the lender that you have a commitment to the loan and are less likely to default. A down payment also lowers the amount you need to finance, making it easier to get approved. You might be able to get a lower interest rate if you have a down payment as well.
Get Pre-approved for a Loan
It will allow you to shop for a car confidently, knowing that you have already been approved for financing. When you get preapproved for a loan, the lender will pull your credit report and give you a loan decision based on your credit history and income. If you have a low credit score, you may still be approved for a loan, but you must put down a larger down payment or pay a higher interest rate.
Acquire a Loan at the Dealership
The first step is finding dealers that work with bad credit. Once you’ve found a few, get quotes from each and compare interest rates. It’s also essential to compare the terms of the loan, the length of the loan, and the monthly payment.
When you’re ready to apply for the loan, ensure that all your financial documents are in order. The dealer will likely run a credit check, so preparation is essential.
Where to Get a Car Loan With a Bad Credit Score?
Several financial institutions offer loans specifically for poor credit, many of which can be found online. In addition, several dealerships deal exclusively in selling cars to those with bad credit. The key is to do your research and shop around for the best deal.
Several websites can help you compare rates and terms from different lenders, ensuring you take advantage of them. With a little effort to learn more, you should be able to find a loan that fits your needs and budget.
Secure an Auto Loan Now
You can do a few things to get a car loan with a low credit score. You can improve your credit score by paying your bills on time, disputing errors on your credit report, and using a credit monitoring service. You can also shop around for the best rates and terms and get preapproved for a loan.
There are also specialty lenders who may be willing to work with you. Whatever route you decide to take, ensure to do your research and look for lenders with the best offers.
If this article has helped you in many ways, read our other blogs for guidance and new knowledge.