If you have bad credit, there are several things you will want to keep in mind as you’re shopping for the best loan available to someone in your situation.
Make a healthy down payment
Part of the formula that will be run when deciding whether or not you qualify for the loan will be your debt-to-income (DTI) ratio. The more debt you take on, the less likely it is that you will qualify for your auto loan.
If you can make a larger down payment, the amount of debt in your DTI will be lower, increasing your odds of approval. Another pro: Each dollar you pay upfront is a dollar you won’t have to pay interest on through financing.
Offer your current vehicle as a trade-in or sell it yourself
In lieu of a down payment, some dealerships will allow you to trade in your current vehicle. You’re not likely to get an amazing offer, but it will help your approval odds and lower the total amount you must borrow.
Of course, you may have better luck selling the car yourself in a private sale. Whatever you decide, be sure you handle the process wisely.
Start by looking up your vehicle’s value on sites like Kelley Blue Book or Edmunds. Get it appraised by a company like CarMax or at a local used car dealership that offers appraisals.
Coming to a dealership with a preapproved offer of financing shows the seller that you’re serious and that you have access to capital. If you’re giving your business to a dealership, it also means your sales rep will be able to run your numbers by the dealer’s usual lending partners to see if there’s a more competitive loan out there.
LendingTree makes it easy to compare loan offers. Check out the LendingTree marketplace for auto loans. Fill out a short online form and you might get quotes from several auto lenders. It’s important to note that some lenders will do a hard pull on your credit.
Consider getting a cosigner
A cosigner can help you get a loan with better rates, or assist you with qualifying for a loan in the first place. Keep in mind that you need to be sure you can afford the loan. If you can’t, the cosigner’s credit is at stake, too, and the hit to both your credit report and his/hers could damage your relationship.