How to finance a car with a low credit score
August 31, 2011 // 0 CommentsLow Credit scores? No credit? Bad Credit? No Problem! We’ve all heard those claims before, but can you really get a good car with a low credit score? Having a low credit score does not mean that you cannot enjoy a new set of wheels. When you do not have the capital to purchase a vehicle outright, knowing where to look and what to expect can ensure financing success.
Smaller car lots and local dealers will usually give you a better chance at financing when you have a low credit score. Look for dealerships that offer a buy here, pay here program; they will be financing you, not a bank or other financial institution. Adding a down payment will add to your financing success. A required down payment can be as low as $100 and has high as $500. Be wary of claims that you can have a new car for zero down. It will be added to your loan so you will be paying more in interest and finance charges. A good down payment will decrease the amount that you finance, helping to keep your monthly payment low.
Be prepared to show that you have a steady income. Providing copies of your pay stub for the last three to six months shows your ability to repay the loan and can help determine a feasible monthly payment. If you are co-signing on the loan, have your co-signer be prepared to provide the same documentation. You will also need to supply a valid photo I.D., ability to provide insurance, and in some cases proof of residency by way of a current utility bill.
Know what is on your credit report. You can request a copy of your credit report from each of the three major credit reporting agencies once a year. Problems such as previous vehicle repossession, recent bankruptcy, and a high debt to income ratio will all work against you. Managing your credit score is just as important as managing your finances. Read through your credit report to look for any errors or discrepancies. A simple letter requesting these errors be corrected can increase your credit score by 50 points or more, and may make the difference in receiving financing.
Examine your budget carefully. Knowing what you can afford monthly will help determine the amount that you can finance. Do not rush into a loan with a payment that you cannot afford simply because you have your heart set on a certain vehicle. The ability to meet your monthly payment is important. Staying current on your auto loan will help increase your credit score, making it easier to receive financing the next time you need a car.
Buying a car, with good or bad credit, is a big decision and one that should not be taken lightly. It’s important to take the time to save a down payment, clean up your credit score, and knowing what you can and cannot afford. Sometimes waiting three to six months is the difference between purchasing failure and success. You can have the car of your dreams with a little planning and preparation.
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