A credit score is considered bad or “very poor” when it falls below 579, if you fall into this range, unfortunately, your chances of buying a car with a bad credit score are slim or close to none, right?
Well, it’s not an easy task but fortunately not an impossible one.
Average US Credit Score
First things first, the average credit score by age in the US is the following, according to Experian:
> 20 to 29 – 662
> 30 to 39 – 673
> 40 to 49 – 684
> 50 to 59 – 706
Will Creditors Even Consider a Bad Score?
Let’s check it with a small calculation, according to Experian, 16% of Americans fall into a number attached to a very poor credit score.
As of now, America’s population sits around 331,002,651 people, 16% of the population represents close to 52,960,424 people, this is a massive number.
Credit granting institutions are a business just like any other one, this means that they see people as a profit opportunity, there is no doubt they will not ignore 52 million people.
Even though they won’t ignore you, it doesn’t mean that you will get the financing plan of your dreams with a low credit score, you will still have to do your homework before applying for a car loan.
Your credit history will play a big role in getting approved, buying a car with a bad credit score will be difficult even if your financial life is stable at the moment, creditors will check previous events, if you have a history of missed payments, bankruptcy, high credit usage, or any other past credit-damaging habits, creditors will see you as a risky customer.
How Can You Overcome This?
First, put deep thought into your need for a car.
Do you want a brand new car or a used one?
Do you already have a car or will it be your first?
Do you have job stability or there’s a risk of being fired?
Do you have a savings fund to cover basic needs and expenses if you fall sick or jobless for a long period of time?
How long will your savings fund last?
What is the reason for the purchase?
It’s important to have REAL answers to these questions and any other related ones that might go through your head.
Creditors will smell through BS from a mile away, they deal with people all day every day, enough to notice common patterns of vanity.
Maybe you found a new job which is far away and you’re in need to commute for a long period of time every day, in this or any similar case, backing up your reason with proof will help your application.
Someone that presents a valid reason for purchasing a car will always be one step ahead of a person that wants a flashy new car to impress his/her ex.
Even with a good reason, bad credit will still make your purchase more expensive, be prepared for it and honestly, inform yourself beforehand, too many people fall victim to predatory lending.
Predatory lenders love people in unfavoured positions that lack possession of information.
This shouldn’t be a problem nowadays, information is everywhere at your disposal, it shouldn’t be the reason to fall victim to predatory lending, please inform yourself before taking any real step to acquire the vehicle.
Why do You Have a Bad Credit Score?
If your credit score is bad or less than ideal, the reason behind it could be a huge deal for your future creditor.
You can be a responsible person and still have a bad credit score for several reasons, for example:
> High and frequent credit usage – If this resonates with you, it’s probably because you commonly use your credit card and repay the full amount by the end of every month, even though this is a good practice to not fall into a perpetual cycle of credit card debt, it’s not so great for your credit score because of high usage, general data suggests that a higher credit usage is directly tied to a lower credit score, using less than 30% of available credit is the sweet spot.
> Not checking your credit report – This should be a regular practice, by not checking your credit report at least once a year, you’re at risk of missing any errors or unexpected happenings that can bring your credit score down, by checking your credit report frequently and any mistakes in time, you can dispute incorrect information before it makes damage.
> Closed credit card – Your credit history represents 15% of your credit score, The longer you’ve had credit, the higher your credit score will be, by closing a credit card, especially an old one, your credit score will drop due to shrinkage of the overall credit limit.
It’s not just paying on time that counts, find out what’s making your credit score go down the drain and take immediate action to correct the problem.
How to Have The Best Shot at a Car Loan?
If you don’t know your credit score by now, FICO is the source to go, it’s used by 90% of lenders and it’s the best way to judge what your future lender will find out about your score before you reach out to them, Click Here to get yours.
Work to improve your credit score in the months leading to apply for the loan, be on your best behavior possible, find out how often your credit score updates and watch how it improves over time.
Avoid late payments, try not to make large purchases with your credit cards or open new ones, check your credit report consistently and work to improve anything bringing your score down at the moment.
Check for Preapproval With your Bank Before Checking With Auto Loaners
Preapproval gives you the possibility of confirming creditworthiness before placing a purchase, prequalifying for your auto loan will give you an estimate of how much you will be able to borrow, speak to your bank about getting an auto loan, after process completion, you’ll receive a preapproval letter with an offer which will stand for 90 days.
Make a Big Down Payment
When in possession of a bad credit score, grab as much cash as you can to make a down payment, if you manage to pay a large portion upfront, this means you’ll make a smooth deal that will be comfortable for you and your borrower, this will put you in a better place, the lending risk will be considerably reduced and the interest rate too, it’s a win-win scenario.
Make Use of a Cosigner
A cosigner is a person that will step in for the borrower, typically a person will solid income and an above-average credit score, this person will take the responsibility to repay the borrower’s debt in case he stops paying.
Attaching a cosigner with a good credit score to your process will significantly increase chances of approval, the best option is to reach out to a close friend or a family member.
Even if you’re preapproved for an auto loan, it’s a good idea to find a cosigner, it might lower the interest rate and other aspects of the loan.
This should be put in practice with the utmost consideration, if you’re not able to repay the loan, the consequences could be devastating for the cosigner.
Take it Easy
The best decisions are the ones worth waiting for, a car loan is a big step, you will be paying it for the years to come, just because you’re in need of a vehicle doesn’t mean that you should opt for the first offer, take your time and pick the one that is budget-friendly and the one to catch your eye.