If you have a low credit score and are unable to obtain a car loan, it is important to investigate the alternative possibilities available to you and the next feasible step for you to take. There are things that you can do to boost your chances of being approved for the next vehicle loan that you apply for. We're going to tell you how.
Traditional auto lenders, such as banks, credit unions, or the captive lenders of car manufacturers, usually have high credit score requirements. If your credit score is lower than about 660, it can be hard to find a lender who will give you a chance at an auto loan. This means that you might not be able to buy a car even if you have enough money to pay for it.
But wait! You can still get a car loan, and there are things you can do to improve your chances of getting one:
- Improve your credit score
- Get a cosigner
- Look into car loans for people with bad credit.
We're going over each step in detail to help you decide what the best next step is for you. Car loans are a very precise science, but these things can help you get one.
Improve your credit score
Fortunately, there are several simple steps you may do to raise your credit score. Credit is built over time, so if you can wait a little before applying, here are some things you can do to help yourself out:
Reduce your outstanding balances on credit cards. Pay as much as you can toward your credit card balances if you are at or near your limit. Reduce your ratio of credit use, or credit utilization. It is bad for your credit score if you use more than 30 percent of your available credit on your various credit cards. Credit scores appreciate those who are successful in maintaining low balances on their credit cards.
Don't be late with any payments. Your credit score is most heavily weighted by your payment history, and a single late or missed payment can remain on your credit reports for up to seven years. Lenders will look at your payment history when deciding whether or not to give you an auto loan. If you have a history of paying bills and other accounts on schedule, this will help your credit score.
Take a look at your credit records. It is possible for credit scores to be lowered due to inaccuracies that appear on credit reports. Expired accounts, accounts that aren't actually yours because of identity theft or an error, and erroneously reported payments are common causes of confusion. Each of the three major credit reporting agencies (TransUnion, Experian, and Equifax) maintains its own credit report, which may or may not contain the same data. Carefully examine each and object to anything that doesn't seem right.
Learning the contents of your credit reports is an important first step towards fixing your credit. You are entitled to a free copy of your credit report from each bureau once every four weeks until April 2021, and you can request them at www.annualcreditreport.com.
A lack of credit history can result in a poor score because there isn't much to look at when evaluating your creditworthiness. Nonetheless, the following procedures are viable options for borrowers with poor credit or no credit at all.
Get a cosigner
Borrowers with low credit scores may be able to boost their chances of getting an auto loan with a cosigner. A cosigner's willingness to help depends on their own creditworthiness. A cosigner "lends" you their good credit and the pledge to pay off the automobile loan if you default; therefore, they must be able to afford the monthly payments on the loan on their own.
For most loans, borrowers will approach a parent or guardian to cosign on their behalf. To be eligible as a cosigner, however, one must not be the primary borrower's spouse. Instead, you and your husband could become co-borrowers, with your spouse contributing to the loan by contributing income. However, this won't necessarily increase your chances of approval if you have credit concerns.
A cosigner is someone who agrees to be responsible for your auto loan in addition to you, but whose name is never added on the title of the vehicle. Even though they have no legal claim to the vehicle, they are nonetheless affected by your payment history on the loan. Maintaining timely payments on the car loan can help both of your credit scores.
Look for loans for bad credit
Unfortunately, not everyone can afford to wait for their credit score to improve or find a cosigner for a car loan. Nonetheless, there are vehicle loan providers — subprime lenders — that will work with borrowers despite a low credit score.
Subprime lenders cater particularly to those with poor credit histories. Loan approval is based on a number of factors beyond only credit, including your salary, stability at work and at home, the amount you can put down, and so on.
A special finance car lot is the place to hunt for a subprime lender. Since subprime lenders are unrelated to the borrower, the borrower never has to interact directly with the lender but rather with a specialized finance manager.
You give your completed documentation to the finance manager, who checks it over and then sends it out to the subprime lenders. If you are accepted, the dealer will tell you how much you are eligible to borrow, and then you may work with them to choose a car that suits your needs and your budget.
Also, because they are recorded to the major credit agencies, subprime auto loans might help you improve your credit score. You can finish paying off your auto loan and improve your credit score if you make your payments on time and address any other issues dragging down your score.