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Do you desire to obtain a new car but don’t have the cash to purchase it? Buying a car with cash is not easy, especially during these times when the COVID-19 pandemic has ravaged the world. It’s either you have the money to provide for your family or to pay bills with. Going for a car might seem like a dream unless you have been saving up for doing so. But still, if you need to get one, there is another way out – get a car loan. You might wonder, what if I have bad credit? Yes, acquiring a car loan with bad credit can be tricky, but the good news is that; some lenders specifically market to individuals with lower credit scores. Okay, but who are these lenders? This blog will focus on the answer to that question and discuss some of the best auto loans for bad credit in 2023. It will also highlight some of the vital information to consider before opting for those loans.
The Types of Auto Loans
Car loans are secured loans that use the car one is purchasing as security. The buyer is typically asked to pay a fixed interest rate and monthly payments for 24-84 months, after which the car will be paid off. Car loans can generally be divided into two groups: purchase loans and refinance loans. A purchase loan is one obtaining a new or used vehicle. Purchase loans are also available for lease buyouts, where drivers opt to buy a car after leasing it out for some amount of time.
People can also decide to take another loan (a refinancing loan) to pay an existing auto loan. One reason for choosing this type of loan is that it has a lower interest rate, which means the overall cost paid would be lower. For instance, someone whose credit score or income has changed recently can opt for a refinancing loan. Or, if such a person finds out that the initial loan has terrible terms, a refinance loan with a better lender can help save money.
What Should You Know Before Applying for An Auto Loan?
There are a few things you should know before applying for a car loan. It’s good to shop around with a few lenders before deciding which is the best auto loan for bad credit. Every lender has a unique method of loan approval and setting the interest rates and terms. One thing that will have a significant impact on the rates offered is your credit score. A better credit score will enable you to get a higher loan or various choices of repayment terms. And, the advantage of getting a longer repayment term is that you will pay lower monthly.
It’s essential to know the interest rates. These will depend on the credit score and income, the duration of the loan you want, and the vehicle type. Making consistent, on-time payments on an existing loan can improve the credit score. You can check with sources like Experian Information Solutions to know the average auto loan rates by credit score. The other things to know include restrictions placed by various lenders, if, rate shopping (applying to several lenders to find the most competitive interest rate), and if a lender will do a “soft or hard” credit pull.
The Best Auto Loan Rates
There are different types of lenders known as best auto loans for bad credit providers, and these may range from dealerships to banks. The only way to know which one will offer the lowest interest rate is by inquiring from them or applying. Each of them will evaluate interested ones differently. Auto loans can be found from:
- You can consider dealer-arranged financing, where a finance manager will give out your loan application to various lenders to see which one offers the best rates. While it is a convenient way to get a loan, the interest rate might be slightly higher, significantly since the dealership might charge some money on the loan amount for service.
- Captive financing lenders. These are mostly financing companies owned and run by auto manufacturers to offer loans to customers. They may provide some special incentives to borrowers with good credit and who are buying a new vehicle.
- BHPH (Buy here, pay here) dealerships. Unlike other dealerships that act as brokers between customers and lenders, they directly finance loans. They usually work with people with bad credit and charge high-interest rates. They are also more likely to repossess the vehicle when you miss a payment.
- Online lenders. These are online financing companies that people get loans from by applying.
- Banks and credit unions
- You likely know that banks are a significant source of auto loans in the financing market. You can decide to approach a bank or credit union for a loan and get one that you will repay with some interest after a given time.
Most of the financing sources or companies for auto loans will offer loans and rates depending on one’s creditworthiness, the down payment made, the vehicle to buy (and whether new or used), and the repayment. It’s vital to check your credit score and know where you lie before deciding which lender to approach. Those with higher credit scores of 781-850 can get loans on excellent terms and a reasonable interest rate. While those with bad credit scores even as low as 300 can still get auto loans, the terms are strict, and the rates are very high, going up to even 14.59% and 20.58% for new and used cars, respectively.
The Best Auto Loan Options for Bad Credit In 2023
The pandemic’s effect may have led you to seek a car loan despite having poor credit. Should you worry? Not at all; you can still get that loan, and below are some of the best auto loans for bad credit in 2022 to consider. (NB: This list is not ranked on any metric/parameter; instead, it only highlights the best options to choose from).
Comparing auto loan offers from various lenders to get the lowest rate possible might be a great thing for someone with bad credit. And that’s where MyAutoLoan comes in. It’s an online marketplace that connects those looking for auto financing to lenders meeting their needs. Even with bad credit, you can get your match in just a few minutes. You can get various loan types on MyAutoLoan ranging from used-car loans to lease buyout and refinance loans.
With Carvana, you can shop for auto finance and get the car in one place. It’s an ideal one-stop shopping place. You can only get one type of loan – finance for a used car. It also offers you the ability to apply for pre-qualification. You can try it as well, especially if your interest is in used cars.
It is another online lender that majors on bad credit auto loans. Since its inception, millions who have already used it have rated it above 4.5 stars for its excellent customer service. Even those who need loans during and after bankruptcy can trust this option. It does not have any credit score requirements for securing a loan, and the loan amounts range from $5,000 to $45,000.
This is also a good source for an auto loan, even for someone with bad credit. It does not have a high credit score requirement and does not need a minimum score at all. What is required is to be 18 years and above with possible earnings of either $18,000 or 21,600 annually, depending on the credit score.
This refinance loan is best for bad or fair credit applicants seeking assistance with vehicle paperwork. It has a low minimum credit score requirement, and someone can prequalify with a soft credit check. The lowest rates for Tresl loans are only available to people with solid credit. Those with bad or fair credit will get money but with the highest interest, meaning the monthly payment and total interest paid will be more.
Autopay is an online marketplace that links auto loan lenders to interested people and allows borrowers to receive loan offers from more than one sender. It offers several loans, including those for new and used cars bought from a dealer, private party loans, and refinancing options like cashback and lease buyout refinancing. It also has the advantage of allowing you to apply with a co-applicant and also to prequalify.
It is an excellent option for those who are undergoing bankruptcy and have filed for it. As you may know, being bankrupt affects someone’s credit score negatively, which can impact the ability to qualify for an auto loan. However, Prestige Financial considers applications from such people. It also allows individual and joint applications and has an interest rate reduction program for qualified borrowers who manage to make their payments on time.
8. New Roads
For interest-rate discounts, New Roads is the way to do for your auto loan. It can be challenging to get low rates with poor credit, but New Roads offers interest rate discounts on specific pre-owned and new car models that can lower interest charges. It also provides various loan types and doesn’t require any down payment. People having bankruptcy or repossession can freely apply for New Roads’ auto loans.
If you’re facing financial constraints or are unemployed, this can be a good auto loan source. It provides loans for new and used cars and accepts applications from people with open bankruptcy on their credit reports. You can trust Credit Acceptance Corp. to help you with vehicle financing, even with fair or bad credit.
10. A local BHPH
If other options cannot get you a good auto loan, you can consider trying a local BHPH. Most of the time, they advertise themselves using phrases like “no credit-no problem” to mean that even without good credit, you can still get a car loan. But, it’s prudent to understand their terms well before choosing to use them to avoid any problem that may arise.
How to Get an Auto Loan with Bad Credit
Although having poor credit raises the rates offered and might not be a sure bet, getting a loan with it is possible. But, how do you enhance your chances of securing such loans, especially if you have issues getting approved or are looking for better rates? The below tips can assist:
- Improve your credit. It’s that simple; the better the credit, the higher the chances. So, before making a loan application, try and pay down as much debt as you have as possible to improve your credit score.
- Make a substantial down payment. Making a larger down payment lowers monthly payments and can also help you qualify for better rates.
- Get a co-signer. Consider getting someone with good credit (co-signer). The person will help increase your qualification chances and might take on some responsibility for the loan if you default. But you should think carefully before asking someone to be a co-signer since failing to pay the loan can affect your credit score and that of the co-signer.
- Consider buying a less expensive car. You can also reduce the amount you borrow by choosing to buy a less expensive car. Even if you have bad credit, a lender might be willing to finance a low-cost vehicle than one that is very expensive and requires a lot of money.
- Get several prequalification offers. By doing this, you can find different interest rates and terms from varying lenders. Get pre-approval from multiple financial institutions, but do not make a complete loan application with a hard credit check till you’re sure about accepting the terms.
The Bottom Line
Buying a car using cash either from savings or earnings is never easy and does require a lot of discipline. Yet, you might find that your credit cannot allow you to get an auto loan to purchase your dream car quickly. Even so, do not allow such a scenario to prevent you. Get your dream car by choosing any of the above-discussed auto loan options and following the points in this blog. It’s not easy, but also not impossible!