Tips to Apply for a Bad Credit Used Car Loan
It may be frustrating trying to apply for a bad credit used car loan. Having a poor credit score is often considered a stigma, questioning your own creditworthiness. Lenders are not likely to approve your loan if you have awful credit.
Thankfully, this isn’t bad news altogether. There are ways to apply for an auto loan refinance even with bad credit.
Can I Apply for a Used Car Loan if My Credit Rating is Not Up to the Mark?
This is one of the biggest questions that many people with a poor score ask.
While there is no guarantee, you might be able to get pre-used car finance with poor credit. Whatever be your objective to refinance auto loan, there are certain lenders who provide auto refinancing to those who have bad credit. Pick the right lender, and you may turn up having a good loan option that fits your budget.
What Credit Score Should I Have for Auto Loan Refinancing?
If your objective is to secure a lower interest rate than your earlier auto loan, having a better credit score is advisable. For people with bad credit history, there are many factors other than the credit score (per se) that contribute to the lending decision. Some of these factors include how many on-time payments are made against the loan, your financial background to support repayments, etc.
Tips to Get a Bad Credit Auto Car Finance
It may be intimidating getting bad credit auto financing. It is better to do your homework before discussing your loan requirements with the lender.
Here are some valuable tips to help you apply for auto loan refinancing with bad credit.
Check Your Credit Rating and Credit Report
When looking to apply for bad credit pre-used car loans, the first thing you should do is to check your credit rating and credit report. It is important that you review the entire report to ensure that every information is accurate and as per your knowledge.
- Keep an Eye on Duplicate Records: Often, credit scores are badly hit due to errors in the report, and you may not be aware of them. Look for errors or duplicate records in the report that may be affecting your credit rating. Report the same to the credit bureau immediately, and get them resolved with your last lender.
- Get No Objection Certificate for Settlements: Credit card settlements and mortgage foreclosures may also show up in the report, hurting your credit score. In such cases, it is advisable to get a No Objection Certificate from your lender before applying to refinance. Be ready with your explanation on what forced you to settle your credit card payment or foreclose your last loan.
- Check the Status of Payments Delayed but Paid: Your credit statement may also record a missed payment that you had made at a later date, i.e. failed to pay on the date of repayment but paid it on some other date. Lenders may unscrupulously (or by mistake) get the same recorded in your report. Get the matter resolved immediately as it can hurt your credit rating as well, and limit your chances of refinancing car loan.
To have a lower rate of interest when you refinance, make sure your rating has improved over a period of time. However, you may not necessarily wait for your scores to improve. A good time to apply is also when the interest rates have dropped.
If you manage to improve your creditworthiness in the meantime, you may be lucky enough to get an instant approval for auto financing with a poor credit score.
Work With Your Current Lender
By checking with your current lender, you have a good chance to apply for a pre-used car loan with bad credit history and get it approved. Whatever it may be – if you have a good liaison with your lender, have made few on-time repayments, your credit rating has improved or the interest rate has decreased – your odds of getting the loan approved are better with your existing lender.
With a poor credit score, you might be apprehensive about asking your lender about the loan due to the fear of rejection. However, you may be surprised to see what a request can do. It is advisable to do the following:
- Do your groundwork and be ready with your reasoning behind missed payments or a poor rating.
- Win over the negatives by showing the positive aspects like a history of timely repayments done or your current financial stability. This can validate that you are a lower risk than when you applied last for the loan.
Banks and financial institutions do not want to lose business, because by doing so, they will also lose their interest payments.
Having said so, not all lenders may approve your request for bad credit auto refinance, but there is no harm in trying. However, if the current lender wants to do a hard inquiry on your credit report, be ready to shop around with other lenders.
Take Steps to Find the Right Lender
Yes, you have worked it out with your current lender, and they have approved your request for bad credit auto loan refinance. Still you may be missing out on better options available in the market. With your existing lender, you might end up paying higher interest rates without knowing what others have to offer.
So, even if you have the best buy with your lender, you should still look around to secure a better loan option elsewhere. There are few banks that particularly provide auto refinancing to people with poor credit score, and they could have a better offer than is fit for your budget.
Here are some actionable tips to make this happen:
- Make sure you compare various aspects when shopping for the right lender.
- Compare the interest rate offered by different lenders – that’s important.
- Ensure that the monthly repayment amount is viable for your budget and allows you to pay off the loan within a reasonable time.
- Consider the waiting time to get your used car loan approved.
Continue Improving Your Credit Rating
Whether your application is approved or rejected, you should carry on with your efforts to improve your credit score. This will help you negotiate for a lower interest rate on future loans or allow you to refinance with much better offers.
Making timely repayments is one of the easiest ways to improve your score. It shows your honest efforts to pay off the loan and indicates your financial stability to support a mortgage. This is a primary evaluating parameter for most lenders.
On the other hand, you should try to strike a balance between your credit limits and what you owe. Reduce your debts to what you are financially capable of repaying. Finally, keep hard inquiries to a minimum. All these can help you improve your rating over time.
Getting approval for bad credit used car loans may be challenging, but not impossible. However, the best time to apply is when your credit score has improved or the auto loan interest rates have dropped. When you think it is the right time, talk to your existing lender to see what lucrative offers you can get. Then shop around to see what better other lenders have to offer. Beware of hidden fees and extensive loan terms, or you may end up paying more interest.