Buying a Car With Poor Credit: How to Get Approved With Ease
Buying a Car With Poor Credit: How to Get Approved With Ease
Posted on August 11, 2023
If you have poor credit and want to buy a car, there are options available but you will need to temper your expectations. With new car prices rising, you will not be able to buy a new car but you can buy “a new used car” at a competitive price.
Our auto loans team explains how you can buy a car with poor credit. We’ll help you drive away happy!
Locating Used Car Dealerships
You will have a difficult time finding online lenders that focus on poor credit auto loans. There are too many variables in the underwriting process. The websites that provide auto loan quotes are geared toward consumers with fair to good credit, which is typically anything that is above 650.
At first, you may feel some trepidation about applying for a car loan with poor credit, this is perfectly natural since no one wants to be rejected.
The dealership wants to sell you a car and the lender wants to get a customer to take a loan. In this situation, everyone gets what they want so you should feel good about yourself.
Interest rates for borrowers with poor credit can go above 15%, you will need to prepare yourself mentally for that. Initially, that rate may seem unfair but you must look at the deal from the lender's point of view.
The odds of a borrower with poor credit missing payments or defaulting are high. To mitigate the risk and cover potential losses, the lender has to charge a higher rate.
These lenders also have to attract investors who will provide capital that can be used to fund these loans.
Lenders are only willing to provide capital on these high-risk loans if they can get a higher rate of return, the “high risk, high return” mindset applies here.
Repairing Your Credit
While you may have poor credit now, your score can improve provided you do the necessary work. It starts by accessing your credit report and reviewing it for mistakes, if there are errors you can have them corrected.
Are you carrying too much debt? Your credit utilization has an impact on your overall credit score, try paying down your balances and keeping your overall credit utilization below 35%.
While credit utilization is important, the best way to improve your credit score is to always pay your bills on time.
If you can pay your bills on time, for 6-12 months then your credit score should start to climb.
Do you have any accounts that have gone into collections? This will hurt your credit score and you will not qualify for prime auto loans until the debt is repaid. If you are strapped for cash, you can contact the creditor and see if they would work out a repayment plan.
Should the creditor accept the repayment plan, you should get it in writing and stick to it. After the collection has been repaid, it will be on your credit report for the next 7 years but as time passes, it will not drag your score down.
With so much emphasis placed on your credit score, why not check it now by signing up with TransUnion or Equifax’s free credit score service? The sooner you begin taking proactive steps to improve your credit, the sooner you will be able to buy a new car at low interest rates.
When you’re ready to lease or buy a car with poor credit, get in touch with the auto loan experts at Northway Ford for great deals on auto finance.
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